Should I disinvest my portfolio after Brexit?
Written by Carl Turner on June 29, 2016.
Are you panicking about your investments in the wake of the shock Brexit vote last Thursday? If so, you’re certainly not alone. To say that markets have been destabilised by the events of the last week could be the understatement of the century! On Friday, £2 trillion was wiped off the value of global stocks and the shockwaves just keep on coming.
This morning’s bombshells include yet another credit rating downgrade, this time from Fitch (AA+ to AA), sterling continues to fall with the biggest two day decline against the dollar ever, the FTSE 250 has fallen another 7% and UK 10-year gilt yields have fallen below 1% for the first time in history.
When the bottom has fallen out of the market there is a huge temptation for investors to cut their losses and shift from stocks to less volatile investments such as bonds and golds, or even good, old-fashioned cash. Before you bail out, take a look at this graph which I hope just might reassure you a little:
What you will see is 25 years of ups and downs of eight world stock markets. And what you will also see is that every single one of them has risen over the long term. Cataclysmic events in the past – most notably the global financial crisis of 2008 – are now merely blips which demonstrate the cyclical nature of markets – they fall and then they rise and there is no reason to believe that post-Brexit they will not follow the same pattern. So yes, on paper today you have lost money but if you stay invested and ride out this bear market your fortunes will turn once again. If you panic and sell now you risk your future self looking at a similar graph in a few years’ time and kicking yourself for selling at exactly the worst moment.
That is one argument for staying invested. The other is the thorny issue of timing if you decide to cut your losses. Do you sell right now or are you better waiting until tomorrow because markets might go up a bit? They could, or they might fall even further and selling tomorrow will make you even worse off.
If timing your exit is hard, it’s even more difficult to decide the right moment to reinvest. At what point will you decide that it is time to jump back in to stocks? In one year, two, five? Often the days which record the biggest gains come soon after those when markets have tanked and by disinvesting you risk missing out on those, a fact which can have a massive impact on your returns. I’ve covered this topic in more detail here.
Believe me, as an investor, I feel your pain. We are all affected by the turbulent events triggered by Brexit and it is entirely understandable for us all to be feeling extremely anxious but disinvesting now is simply a bad idea. As we Brits are so fond of saying: keep calm and carry on!