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Brexit: five tips for investors

How should investors react in turbulent times?

Brexit investmentVolatility highlights need for long-term approach

In the immediate aftermath of the EU referendum result, shares plunged in value. 

At the time of writing, some markets have largely recovered, although the FTSE 250, arguably more indicative of UK economic health than the FTSE 100, still sits below pre-referendum levels.

Here, we bring you five investment tips for the post-referendum world.

Five investment tips after the Brexit vote

1. Take a few deep breaths

Don’t panic. Stock markets rise and fall as world events unfold. Negotiating short-term volatility is a necessary part of being a patient, long-term investor.

In any case, trying to time the markets is extremely difficult – it’s something most professionals investors struggle to achieve consistently.

As a rule of thumb, if you think circumstances are going to change in the market, professional investors are likely to have considered the idea already, and bought or sold accordingly, until assets are once again consistent with expectations about their prospects.

This is called ‘pricing in’, and is part of what makes stock market investing so difficult for private investors over short periods.

Your investment strategy should be a long-term one and shouldn’t change because of day-to-day fluctuations on the stock market.

2. Think about your attitude to risk

Of course, it’s possible that market volatility may lead you to re-assess how much risk you are comfortable taking. Perhaps you invested in stocks and shares without realising how much prices can fluctuate, and now you realise you may have signed up for more risk than you can stomach.

If you’re unsure, speak to a financial adviser, who will assess your capacity for risk and suggest a portfolio to match.

Alternatively, check out our portfolio builder tool to see if you should consider changes to your portfolio.

3. Diversify

If you take one lesson from the post-referendum market volatility, it should be that keeping all your eggs in one basket is a bad idea.

If you’d invested only in large, multi-national FTSE 100 companies, your portfolio would have taken a dramatic hit, albeit a temporary one. However, if you were overly-exposed to smaller FTSE 250 companies, you might still be feeling anxious – FTSE 250 companies are more likely to take most of their revenues from within the UK and therefore more sensitive to concerns about the domestic economy.

On the other hand, FTSE 100 companies are more likely to take revenue from abroad, so their financial results could actually be boosted by a weak pound. And other geographical regions and business sectors will be affected in different ways as events unfold.

Different asset classes – bonds and property for example – will also potentially move in different ways, protecting you from losses.

Learn more about asset allocation with our guide here.

4. Hold off withdrawing cash

If you are taking an income off your investments – for example, in retirement – but don’t need the cash to live off, you might consider holding off on withdrawals for a while.

If you take money out of your pot during a tumultuous time, it can make it harder for your pot to recover its losses as markets spring back.

5. Seek financial advice

Still unsure? Ask your financial adviser for a review of your portfolio, or call our helpline to discuss your options with a Which? Money expert.

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