Nobody can say for sure how Brexit will affect our finances, at least not until the details of the negotiations with the EU are known. But whatever shape Brexit takes, it is certain to have an impact on every aspect of our lives, from employment to investments and from the cost of living to pensions and house prices.
How Does Brexit Affect Investments Like Shares?
The extent to which Brexit will affect investments will depend on a number of factors, including which companies and funds are being invested in, and in what ways they are likely to be affected by the UK leaving the EU. For example, not all UK companies have suffered as much as was initially predicted. In fact, if you invested in larger UK companies, you might have seen the value of your portfolio increase since the referendum. This is because many larger UK companies do the majority of their business overseas. Businesses whose earnings are in other currencies have benefited from the weakened pound too – once transferred back to the UK, their earnings are worth more. Investments in smaller companies where the business is largely domestic and therefore at the mercy of the UK economy haven’t done so well. Companies where the business is primarily exports may have benefited from the pound falling against the US dollar, the euro and many other currencies, making their products more attractive to buy. However, if the components of the manufactured goods have been imported, the weaker pound will contribute to a rise in the cost of making them.
What About Pensions?
Anyone who is a member of a final salary pension scheme can be assured that whatever Brexit will mean, their pension won’t be affected. Incomes from annuities will not be affected either, as they are protected under the FSCS scheme for up to £75,000. However, since the referendum, some insurance companies have started offering reduced income rates for new annuities. SIPP pensions and drawdown pensions which are invested in the stock market will be exposed to market fluctuations, and a significant fall in value could have an impact on the income generated from them.
Investors are facing challenging times as the UK plunges into the unknown. In these uncertain times, it’s even more important to look at whether your portfolio is diversified enough, and now is a good time to take a close and careful look at your investments. With so many uncertainties, a good way to get a reality check is to enlist the help some good Independent Financial Advisers for advice on what best to do to protect your investments.
With it being so soon after the referendum, and with the Brexit negotiations still to get under way, it’s impossible to know whether to switch funds or sit tight or whether or not to reduce drawdown pensions for a period is the right thing to do.
IFAs can help advise on the best ways to diversify your investments and protect yourself from uncertainties and fluctuations in the short and long term.