Blog Article

 Investments

Brexit, market volatility and your investments

December 13, 2018

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Brexit and market volatility – useful messages to help reassure employees

Market volatility is unnerving – even the most confident investors can be unsettled by it.

Our own customer research has told us that investors want to be informed, reassured and feel confident about their long-term savings plans. That’s why we keep them informed about what’s going on in markets on a regular basis, especially during heightened volatility.

With uncertainty around Brexit likely to continue going into 2019, volatility is also expected to continue in the short to medium term. So we’ve been setting expectations with our customers about the potential impact of market volatility on their investments. These include core messages around investing for the long term and market volatility being a normal function of a healthy market.

Here we share our main reassurance messages, which you may find useful if your employees are concerned about the impact of market volatility on their pension investments.

  1. Slow and steady wins the race?

Market volatility is unnerving and differing opinions on what the future holds only confuses matters more. But it’s important to remain calm and remember that volatility is part and parcel of investing over the long term. Think of the tortoise and hare – the moral of this story is that you could be more successful by being slow and steady than quick and careless. When it comes to investing, “slow and steady wins the race” is the name of the game. The longer you’re in it, the more likely you are to reap the rewards.

“Its not about timing the market, its about time in the market” is another favourite saying among finance professionals – meaning of course that trying to move in and out of investments at the ‘right time’ is rarely better than just staying invested over the long term, and you could argue it’s easy to say when things are going wrong. But when you take a step back and look at market events in context, it’s clear to see why it’s consistently the advice that’s given:

Source: Financial Express. FTSE® All-Share Index, total return with dividends reinvested, from 31 December 1985 to 11 December 2018. Figures don’t factor in any charges or the impact of inflation.  Figures refer to the past and past performance is not a reliable guide to future performance.

The chart above shows the major market events between 1985 and 11 December 2018 (as far back as FTSE® All-Share Index data goes) and tracks the growth of a £10,000 investment over that time. A lot happened, and there were definitely bouts of panic, but if that £10,000 had remained invested for the whole period, the growth would have been remarkable – even taking charges into account, which the graph doesn’t.

But what’s really good about looking at all of the years of activity all at once is that it really brings things into perspective. 2016 and 2017 were billed as turbulent years for markets. But if you look at the impact of the Brexit referendum and the US election in relation to everything else that’s happened in recent history, it seems far less momentous than it would if we looked at the events in isolation.

  1. Try to remain calm

It can be easy to panic when you see the value of your investments fall – it’s a very normal reaction. But keeping your emotions in check is really important.

If you give way to fear and sell, you’re likely to be selling after markets have already fallen and, importantly, before they rise again. That means you’re locking in losses and will potentially have less money than someone who kept their composure, and their money invested.

On the other hand, if you see markets doing really well, you might be tempted to buy in to them then. But, if you do that, you could end up buying at the top of the market, and your new investments could fall in value soon after.

This illustrates why trying to time the markets can be a dangerous game, and catching the top and bottom end of things is extremely hard. So don’t try to time them – focus on what you can control. After all, if the market professionals didn’t spot falls coming, why would you?

  1. Focus on what you can control

Periods of market volatility are a valuable reminder of the importance of diversifying – of spreading your money across different types of investments and geographical locations.

If you’re investing in only one or two of these then you’re exposing yourself to quite a degree of risk. But diversifying across investments and countries can help provide a much better balance between risk and return.

  1. There will always be ups and downs

Nowadays any important event, wherever it happens in the world, may have an effect on financial markets. That’s why fund managers actively monitor portfolios, so that they’re able to make tactical changes to take advantage of the opportunities presented by changing market conditions.

If you want to keep up-to-date with what’s happening in global markets, read Andrew Milligan’s monthly market review. He’s been highlighting for some time now that a correction in equity markets wouldn’t come as a surprise. Encouragingly though, he believes there are few signs that a major sell-off is likely in the next couple of years – unless there any major global shocks.

Andrew Milligan also provides a monthly market review for our customers. Your employees may find this useful to give them some context about what’s happening with their investments. They can read these at https://blog.standardlife.co.uk/investing/

 

With any investment, the value can go down as well as up and it may be worth less than was paid in.

This blog and any responses to comments should not be regarded as financial advice. The information here is based on our understanding in December 2018 and will not be updated. The FTSE UK All-Share Index is calculated solely by FTSE International Limited (“FTSE”). FTSE does not
sponsor, endorse or promote this fund. All copyright in the index values and constituent list vests in FTSE. Licences have been obtained from FTSE International Limited to use such copyright in the creation of this fund. “FTSE®” is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. “All Share” is a trade mark of FTSE.

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