The Referendum has stirred up so many emotions among so many people, the likes of which I have never seen before. On the one hand it has been great for politics, I don’t recall there ever being this much interest in a political vote. On the other hand the aftermath of the vote has been significant.
Interestingly though, I do believe it will be politics that loses more than economics (for example). You know the great thing about investing is that it has economic theory to back it up. The theory that there must be a return offered in exchange for a risk taken is a universal truth. If there is no return people will simply cease to take the risk. So we know returns will continue in the investment world. Whether political ties will be healed is another matter. Unfortunately, emotional relationships are different, they have no theory to bind them.
Regardless of which way you voted, I take pride in knowing we’re a country that care. We turned out in great numbers to make our vote count. The implications are profound. If we do leave the EU, (and I don’t think there is any guarantee of that because there are varying degrees of leaving) it will be up to our negotiators to decide to what extent we want to leave.
The EU believes in four fundamental principles of freedom with regards to the economy: freedom of movement for goods, services, financial capital and human capital. They believe you can’t have one without the other. They’re going to say that we can’t have financial capital coming in to the country, if we’re not prepared to have human capital also coming in. So that then has profound implications for our economy.
If we have restricted movement of goods, services and financial capital coming in to the country (just because we want fewer EU citizens coming in to the country) then life will become harder for us. That is because without humans there is no need or appetite for goods, services and financial investment. Those countries with large populations simply have larger economies to accommodate them. This is why immigration is so healthy for western countries who have comparably lower birth rates.
The ‘Little Britain’ mentality will need to be avoided by going international to find alternative trade agreements if we fully leave the EU. The reason being is that ‘Little Britain’ means a stifled economy; which means lower growth and lower investment returns for investors. So in effect, leaving the EU means lower investment returns for investors given that international trade negotiations can take time.
So what does this mean for you? It will be more important than ever to spread your investments well. In uncertain times, the truth is that nobody really knows what is going to happen, primarily because this has never happened before. So a well-diversified portfolio, balanced in a way that is suitable for your own personal needs is really the only way to go.
Trying to second guess which areas will perform well and which will not is a fools game. It will be important to hold a portion of all the main asset types as we navigate the next few years into unknown territory.
This is really just the beginning of the journey. For our client portfolios – where we have split down the investment sectors to have more control in each specific equity region or fixed interest sub-sector, this will afford us the opportunity to control with more purpose how they are invested.
If you’d like to discuss how all of this will affect you over the coming years please do feel free to get in touch.