Britain’s decision to leave the EU is a major change in direction for all of us, and the implications will take a long time to become clear.
The decision created volatility in the stock markets, particularly in the UK, with downward pressure on UK equity funds, including UK commercial property. Other equity markets, however, including the USA, Europe and Asia, responded positively to the news and the opportunities presented due to the weakening in the sterling currency.
At Burton & Fisher, we provide model investment portfolios that are exposed to such volatility in the stock markets, but our portfolios are diversified and invest in a number of different funds that invest in stocks, shares and commercial property in the UK and overseas.
Whilst some funds may fall in value, others may increase in value at a given time. In this way, a diversified portfolio can still make positive returns, whilst a portion of the portfolio is declining.
Why Should You Diversify?
Since Brexit on the 23rd June 2016, all our model investment portfolios have performed positively and we believe that diversification is a key reason behind this success.
We monitor the investment mix and believe that setting and maintaining a strategic asset allocation is essential for any long term investment strategy. The value of the investment portfolios, however, can go down as well as up and you may get back less than you invested.
So, what are the main reasons for diversification in your investment portfolios? Many people believe that diversifying equates to boosting performance, but it doesn’t necessarily mean that you are guaranteed to gain or lose anything.
In fact, diversification is often used as a risk management tool when it comes to your financial investments. It allows you to choose a risk level that you are able to effectively manage and are comfortable with, potentially improving the returns for that specific risk level.
Over time, rebalancing of your investments is crucial to maintaining the risk level that you have chosen; this often means having your asset allocation checked over by a financial expert once a year – or more frequently if your finances change significantly.
How to Build a Diversified Portfolio
In order to build a portfolio which is diverse in nature, it’s important to look for a variety of assets to invest in.
Stocks, cash, bonds, shares, commercial property and other assets which haven’t got a history of moving in the same direction and whose returns are known to move in opposite directions are a great starting place; the idea is that if some part of your portfolio is declining, there will be other assets which will be growing.
In short, no-one knows for sure how significant the impact of Brexit will be, or even whether it will end up as a positive or a negative for the UK. Navigating the investment landscape becomes ever more challenging when such uncertainties abound.
It’s easy to be blown off course by short-term events. Make sure you have a plan that’s right for your circumstances, and then stick to it. That said, it’s a good idea to periodically re-examine your strategy and adjust it if necessary, and events like the referendum can provide the perfect catalyst to do so.
With the EU referendum out of the way it could be a good time to re-evaluate your long-term investment plans, and our advisers at Burton and Fisher will be more than happy to discuss the merits of investing using our model portfolios. If you want to know more about our investment services, please don’t hesitate to contact a member of the Burton & Fisher team.