“Falling pound hits holiday makers” and “No deal Brexit could push pound to record low” are just some of the headlines we have seen in recent weeks.
The NEWS (Negative Events World Service) media have been all over this causing some panic.
But should you be making any changes to your investment strategy at this time?
Well let’s look at the effects of a falling pound and how you should react.
The effects of a falling pound
You may think that a falling pound is bad news for your investments. A falling pound just doesn’t sound right does it?
Actually, sometimes a falling pound can be good news for stock markets, as was seen after the EU referendum in 2016. The leading UK stock index, the FTSE 100, went up by 12% in the 2 months after the referendum as the pound fell.
The main reason for this is that the biggest companies in the UK are international companies with much of their earnings coming from overseas. Therefore dollars earned in the US will buy much more pounds if the pound is falling.
In theory, a falling pound should also help UK exporters as overseas investors will see an opportunity to buy cheaper products.
BUT these positive scenarios are only for the short term. In the long run a falling pound is not good for our economy.
Ultimately, as a country, we import more than we export therefore a falling pound means it’s more expensive to import stuff. This will eventually work its way into increased prices in the shops.
Currently this makes the Bank of England’s job very hard. Depending on how Brexit goes it may want to cut interest rates to help boost the economy. However if inflation is on the increase due to a falling pound this could make things even worse.
What to do with your investments when there is a falling pound
The most prudent thing to do with your portfolio is to ensure you have a worldwide spread of investments, so it is not totally dependent on UK companies.
Remember UK companies only make up around 5% of the world stock markets. Holding overseas companies will ensure you benefit from a stronger dollar, euro or yen etc.
Ultimately you need to remember your plan, your long term strategy to get to where you want to be. Has anything changed? If not then there is no need to make any quick decisions.
Investment volatility is the price we pay for long term success.
If the stock market does start falling then look at this as a rising in value market.
If you are worried about what to do next with your investments please get in touch so we can carry out a full review for you. The investment portfolios we recommend are built to deliver your financial plan and to withstand the economic shocks that will always come along.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.