Your Brexit checklist

The monumental decision taken by the British electorate to leave the European Union has naturally caused turmoil within the markets. Andy Parsons, head of investment research at The Share Centre, provides a list of things to consider when investing during volatile times

Your Brexit checklist

On Friday 24 June, the announcement was made that the majority (52%) of Britons had voted to leave the European Union. It was an unprecedented day for the UK economy as sterling plummeted and markets both home and abroad fell.

The size and scale of the falls were all inside general consensus and within four days of the Brexit decision, the UK market has returned to levels seen prior to the vote.

At present, we still remain part of the EU and until political uncertainty is resolved and firm negotiations begin, there is every possibility that market volatility will remain a constant theme. Such volatility will undoubtedly lead to personal investors remaining fearful and more risk adverse.

However, we believe the five considerations outlined below could give investors the confidence boost they need to invest in these volatile times:

Do not make irrational decisions

Firstly, investors need to take a step back and consider why they are investing. If the investment goal, and time frame associated with it, hasn’t changed and firmly remains in the future then my advice would be to sit tight. It is very easy to get swept up with the noise regarding crashing markets and subsequently panic.

Whilst selling up may of course be the right course of action for some, for others holding off and taking stock may be more beneficial. It can be very painful looking at a sea of red figures within a portfolio, but unless you have to cash an investment in, remember it simply remains a paper loss and no loss or gain is realised until such time as encashment.

Volatility creates buying opportunities

The Warren Buffet quote of ‘Be fearful when others are greedy and greedy when others are fearful’ is possibly opportune in these Brexit times.

For many, the natural reaction is to sell, whilst for those with a keen eye and stomach for turbulence, volatility can create a buying opportunity.  Indeed by early afternoon at The Share Centre on results day, we had seen 56% of trades as buys and 44% of trades as sells, indicating that investors with an appetite and appreciation for risk are using market volatility as a cheaper entry point into some of the favoured investments whether large or small.

Drip feed into the market

The ability to drip feed money into your investment during volatile times is an ideal way to help navigate such conditions. Adopting a ‘little and often’ approach is a very achievable strategy, and drip-feeding into an investment can help reduce exposure to volatility whilst also benefiting from the returns.

Risk vs Reward

Be realistic in your expectations. If you are saving for a specific reason or event and need to achieve a certain level of capital, you need to consider the overall timeframe and approximate level of return required to achieve that aim.

Does the investment being considered carry a higher degree of risk than you are comfortable with taking? If the answer to this is yes, then the investment is likely to be unsuitable and will likely make you feel uncomfortable and could cause sleepless nights and a vast amount of worry.  Always ensure you are comfortable with the risk being taken and if needed, realign and appraise your objectives.

Be flexible and be wary                                 

During volatile markets it is crucial for investors to identify and appreciate their tolerance to potential losses. Stop loss limits and buy limit orders could therefore be worth considering.

Stop loss limits are a wonderful tool in normal market conditions but investors should appreciate they also have the potential to be your worst enemy. In times of extreme market volatility they could be triggered at prices way below the level set, due to prices plummeting and subsequently falling through that level.

For those actively seeking to benefit from the volatility, a buy limit order may be worth considering. It may allow investors the potential flexibility to pick up an investment at a significantly reduced price, compared to normal market conditions.

Remember, only buy what you know and understand.

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