Brexit and the financial market’s reactions have caused many investors some sleepless nights in the past 72 hours. With so much uncertainty, investors are looking for something or someone to help clarify their thinking.
The message from financial advisers to bewildered small investors appears to be “hold your nerve”. Many advisers are pointing out that more than 70% of FTSE 100 earnings are international in nature, and so are little affected by any weakness in the UK domestic economy stemming from the vote.
A round-up of comments from major players in Financial Advice and Wealth Management over the weekend seems to suggest that most are in agreement about their response.
Speaking to The Guardian, Jason Hollands, managing director of wealth management group Tilney Bestinvest, said: “Investors are going to need to hold their nerve through the coming days. Although the scale and rapidity of the slide in sterling is enormous, the UK has previously endured sharp devaluations before, notably following the ejection of the pound from the European Exchange Rate mechanism (ERM) and in the aftermath of the banking crisis. While painful at the time, both were followed by periods of economic expansion.”
At Hargreaves Lansdown, the UK’s biggest financial adviser, investment director Mark Dampier said: “Stay calm.”
He added: “Like ERM, if you have cash, this is an opportunity and you would be mad to sell. Many funds will be yielding 5%, so you are paid to be patient. The UK will look attractive from overseas buyers’ point of view.
We have always promoted a level-headed, long-term approach to investing. Advocating a sense of calm amid uncertainty is not just borrowing from Kipling, it is based on lessons from history.
In short I would urge investors not to act in haste. The market is almost certain to be volatile over the coming days as details emerge over when and how the Brexit might take place. There is also likely to be political wrangling in the wake of David Cameron's resignation.”
Michelle McGrade, chief investment officer of TD Direct Investing, said: “…. we must focus on the fundamentals and remember that the UK is the fifth largest economy in the world and fighting fit. What’s important is that the government acts quickly to stabilise the economy and help restore market confidence.”
David Finan, director and chartered financial planner at Jardine Finan said: "Of course our client investments have fallen and this was widely predicted. We don't believe this will last over the long term. The markets always respond in an extreme way to extreme situations and, yes, sterling is falling but we expect it will stabilise in the long term.
But the truth is, the drop in the value of sterling will be excellent for exports. Major economies are fighting to lower the value of their currencies, and other countries will want to buy our goods because they will seem cheaper. We don't intend to take any immediate action to warn clients but will respond to questions as and when they are put to us.
Over the long term I think Brexit is a good thing. A measure of democracy has been restored. We contributed £7bn to £9bn a year to the EU and there have been problems reported around the reconciling of accounts. This was one of the things that swung it for me."
Quoted in Professional Adviser, Scott Gallacher, director and chartered financial planner at Rowley Turton said: "The bookies and the City got it wrong but, while we were surprised, we don't believe there will be a huge impact on the business long-term. In the short term, there will be volatility we could do without but our clients are invested for the long term and so shouldn't be affected - their investments are all aligned to their risk profiles and Brexit is just one in a long line of stockmarket concerns.
Our client portfolios are built to weather storms like this and we always warn them there is likely to be a crash around the next corner. We warn against knee-jerk reactions to these crashes.
All of these comments can probably be summed up in this quote from a newsletter sent to clients by Fensham Howes Strategic Financial Management:
“We strongly recommend that clients do not try to take any immediate actions in response to the Brexit vote. Unexpected extreme market events occur much more frequently than is normally understood by many investors, and individuals who do not understand capital market history will always tend to get surprised by events. Decisions made in response to fear, greed, or stress are usually wrong, usually late, and very difficult to reverse at the right time. This is why we establish a formal investment policy for each client. Policy is the most effective antidote to panic - staying invested consistently yields the best long term results.”