Have I Got EUs for EU

Matt Masters

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When a single issue starts to dominate headlines, it can become a little tedious. Whether we like it or not, Brexit will continue to be front page news for a while longer.

However, it’s important we keep Brexit in perspective. While Brexit may lead to a period of disruption, a number of economists believe that, in the long run, it’s unlikely to make a significant difference to GDP growth. For global investors there are bigger issues:

  • the price of commodities;
  • weakness in emerging market economies;
  • concerns over the future strength of the Chinese economy;
  • President Trump’s unpredictability;
  • the USA trade war with China;
  • and rising interest rates.

So, while turbulence, be it the result of Brexit (and there is near unanimity in a recent Centre for Macroeconomics survey that the Brexit question will increase financial volatility) or other factors, can be unnerving, it also offers opportunities. The key is to keep calm and remember that volatility is part and parcel of investing over the long term and a normal function of healthy markets. The moral of the tortoise and the hare story is that you can be more successful by being slow and steady than quick and careless.

Market volatility has undoubtedly caught out some over the years, causing them to panic and sell, losing money in the process. However, investors who have been able to stay the course are likely to reap the rewards. By way of illustration, over the past 30 years or so (incorporating Black Monday, Black Wednesday, the Dot.Com crash, Lehman’s collapse, the Global Financial Crisis and the like) £1,000 would have grown to over £18,000 if invested in the FTSE All-Share Index. Indeed, adding to existing positions at attractive valuations has been a cornerstone of Warren Buffett’s success.

Where does that leave trustees and sponsoring employers of DB pension schemes?

  • Factor Brexit in as a managed risk, keep an eye on covenant and be mindful of members with EU bank accounts.
  • When it comes to investing, don’t panic. Brexit is a known unknown. This means that it’s impossible to accurately predict how various scenarios will ultimately unfold. As a result, it would be prudent to consider exposure to a variety of economies and asset classes; as well as ensuring there is sufficient available cash to meet (potentially unpredictable) benefit outflows.
Matt Masters

Post by Matt Masters

Matthew is an experienced pension scheme actuary who has advised a range of pension scheme clients and their sponsors on actuarial and investment matters. Having an appreciation of trustees’ and sponsors’ objectives and concerns means that Matthew is well placed to provide practical and pragmatic advice that is acceptable to all parties.