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Plan your portfolio for political uncertainty

23 May 2019

3 minute read

An ongoing period of political uncertainty can be unsettling for many investors. We look at some of the ways investors can plan for any potential storms that may lie ahead.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.

What you’ll learn:

  • How political change can impact markets.
  • Why diversification matters.
  • Why you should avoid panic decisions during periods of political uncertainty.

When the UK voted for Brexit back in July 2016, few people would have predicted that we’d still be part of the EU and voting in the European elections in May 2019.

The elections are taking place across the EU until 26 May with UK voters having cast their votes on 23 May. The results are expected to begin being announced late on Sunday evening.

Of course, no-one can accurately predict exactly what the outcome of the EU elections will be, nor which way markets will respond to the results, which is why it is important that investors try to remain focused on the long term rather than being distracted by any short-term noise.

It’s also important to ensure your portfolio is prepared for any potential volatility. This applies not just to UK-based investments but to all investments, particularly in light not only of EU elections and Brexit, but also continuing concerns over the escalating trade war between the US and China.

Don't rely on one type of investment too heavily

Ensuring your portfolio is properly diversified by investing in a combination of different assets such as shares, bonds, property and cash can help reduce overall risk and volatility caused by political uncertainty.

That’s because if one type of asset does particularly badly, the overall impact on your returns won’t be as big as if you’d invested in this asset class alone. Of course, the reverse is also true – so if one type of asset performs especially well, you won’t benefit as much as if you’d chosen to invest in just that rather than a spread of assets.

Another way to protect yourself from stock market falls resulting from political uncertainty is to consider holding funds invested in different geographical areas to really help spread your investments around.

Bear in mind however, that this exposes you to foreign currency risk. This means that when sterling is weak, your pounds will buy you fewer foreign currency-denominated investments. However, if you already have overseas investments, lower exchange rates can work to your benefit, as any income or gains will be worth more when translated from other currencies back into pounds.

Don’t forget, of course, that volatile asset prices could offset any gain or loss from currency movements.

Avoid panic decisions

When the stock market rollercoaster ride can seem hard to stomach, remember that often the worst thing you can do is to panic and sell out of your investments.

By doing this you’ll crystallise your losses, whereas if you’re able to sit tight during the bad times, you may, in time, be able to benefit from any recovery.

Dipping in and out of the market and trying to pick the best times to invest is an extremely risky strategy, as no-one knows for certain which way markets are likely to move next.

This article is for information purposes only. If you’re unsure, seek independent financial advice.

As always, make sure you have as much information as possible before you make any decisions about your money. No matter how you try to protect yourself from uncertainty or otherwise, values can still fall and you might get back less than you invest.

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