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An environment of fear and speculation surrounds Britain’s exit from the European Union, with short-term traders moving their money rapidly in response. The market has plunged rapidly over the past few days, with billions moving into exchange-traded funds that track indices, gold prices, and more. But what about long-term investments? Here are some basic moves you can make while the Brexit storm blows over.
Don’t Make any Sudden Moves
This advice might seem hard to follow given some of the terrifying things that have happened in the markets since British voters backed Brexit. In just two days, the British pound fell 12% against the US dollar, and over the same period of time, Barclays (BCS) share price plummeted by 35% in pounds and 42% in dollars. Gold prices increased to their highest point in two years, and stocks in Japan took an 8% dive overnight.
Despite plunging prices, let the old British adage “Keep Calm and Carry On” apply to your strategy. After two terrifying trading days, the U.S. market is still up several percentage points from its February, 2016 low point, illustrating the importance of refraining from selling out of panic. It’s never a good idea to mingle emotion and investing. Instead, hold onto existing investments if you can, stay calm, and watch what happens over the coming days, weeks, and months.
Consider Alternative Investments
When traditional markets are at a standstill, trading doesn’t stop. Alternative investments offer a number of benefits and make a good place to keep your money working hard for you. Alternatives allow you to diversify investments, provide uncorrelated returns, and reduce risk, making them particularly attractive during post-Brexit market volatility. When you invest in alternatives, you can take advantage of three key benefits:
- Higher return potential – can outperform traditional markets by being continuously active
- Market protection – capable of returning profit even when markets go down
- True diversification – lessens the correlation of traditional portfolio to stock market, helping to provide protection from volatility
Keep on Diversifying
There are quite a few investing myths that can slow your progress if you buy into them. One of the worst is to “invest in what you know.” This might have worked perfectly well for past generations but does nothing for today’s portfolios. Instead of investing only in industries that you’re familiar with, diversify by putting your money in banking, health, real estate, and government, preferably with the help of an expert adviser. What makes this piece of advice so important? Sticking with what you know can leave you vulnerable in the event of an industry-wide collapse; if you diversify, you’re better protected. Even Credit Suisse has advised its clients to look beyond big, traditional investments post-Brexit, and focus on smaller companies that continue to perform well.
As you manage your money post-Brexit, keep your investment goals in mind. Allow for some risk and have a plan for managing it, and consider the benefits of having external wealth managers help you to navigate the turbulent waters of investment, finance, and the markets.