FINANCIAL INDUSTRY NEWS

​Leave the worrying to us

We have had a new Prime Minster for only a matter of weeks and Mr Johnson has already polarised opinion, almost as much as the topic that has been at the forefront of - and central to - the nation’s thoughts since David Cameron announced the Referendum back in 2016. ‘Brexit’ has become such a familiar term that it has entered the Oxford English Dictionary and we would suggest that the only word discussed more amongst the British is ‘weather’ - although that seems to generate a lot less friction. The Prime Minister seems adamant that we will leave the EU on 31st October 2019, with or without a deal and only time will tell whether this is the case or not.

So… is this a cause for concern?

Firstly, we must emphasise that our role is not to discuss the rights and wrongs of the UK leaving the EU. That is a matter of opinion and our main concern is to help you broadly understand how Brexit, in whatever guise it takes, affects your underlying investments.

So, a better question for us to address is, should you be worried about your investment portfolio? Well, to put it simply, we think not.

Let’s consider what may happen in the short term. Firstly, we may - or may not - be leaving on 31st October. Mr Johnson is adamant that it will happen, whilst others in Parliament are very unsure. This friction will possibly end with a vote of “no confidence”, which almost certainly will lead us to a General Election - which may have already happened by the time this article goes to print, such is the fluid nature of these discussions. All of this generates uncertainty.

However, it must be noted that if you are invested through one of our investment partners, we can guarantee that none of our clients is invested 100% in UK Equities. Discretionary investment managers are dynamically controlling the risk within portfolios and it is for this reason that you will see a higher allocation to more defensive assets than in years gone by. This is to try and smooth out some of the peaks and troughs of the stock market. However, overall performance has to come with an element of volatility and that, in itself, can often offer opportunity.

For example, should we leave without a deal on 31st October, the Pound is expected to fall sharply against the Euro. Yet, with most FTSE 100 companies generating their profit from overseas, this potential fall in currency will be seen as a good thing for them.

As we have said many times before, it is not about timing the market, but time in the market. Our role is to ensure that you are invested in a risk controlled investment portfolio that best suits your circumstances for the long term, to help you meet your lifetime goals.

We are not saying that this won’t be a difficult time for the UK, or that stock markets won’t be affected. But we do want to reassure you that our Investment Partners continue to survey the horizon for storm clouds and have taken active steps to provide more insulation within portfolios, to reflect the challenging market and economic conditions.

Therefore, we would encourage you to spend more time thinking about what you are going to do with your life and money, rather than being concerned about the short term impact of markets on your investments.

Why not leave the worrying to us - that’s what we are here for!

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Why Diversification Matters

County Financial have been recommending Discretionary Investment Management for over 11 years. Our responsibility is to analyse different investment firms to ensure that their processes are robust, their charges are reasonable and that they perform well against a given benchmark.

This has become even more important in recent weeks in the light of headlines concerning Neil Woodford’s fund. He was once the “darling fund manager” who could do no wrong when he managed money with Invesco Perpetual, but his performance has suffered badly in recent times, causing him to issue a public apology. However, this probably hasn’t gone far enough in the minds of some investors who are unable to withdraw their funds and are now nursing significant losses.

This is why we, at County, use investment companies that have expertise in Discretionary Fund Management where investors’ money is spread across many different funds and have a strict volatility management process. In our experience, investing in a variety of assets offers the opportunity of mixing both higher returns with lower risk. Put simply, this form of diversification is a risk management strategy that mixes a variety of investments within a portfolio.

This means that Discretionary Investment Managers can get on and operate without having to worry about whether you should be in UK Equities, US Bonds or Commercial Property, as long as they are not breaching the parameters that were set at the inception of the investment . More importantly, it ensures that your exposure to any one individual fund is extremely limited.

We also recognise that as soon as active investing gets a difficult press, people are drawn to banks as a place to save their money, opting for the chance to get some interest and a sense that they are somehow protecting their capital. But, in a time of rising inflation, this strategy may result in you watching your money devalue over time.

The wealth of many people in the UK is under threat as inflation is outstripping savings account returns by around 2%, thereby slowly reducing the buying power of this asset. With cash suffering from a steady decline as time goes on, it may be better to look at other avenues to diversify your savings and help them grow.

There is no question that for the purpose of security or as a guarantee of capital, cash is an excellent asset class. It’s the ideal place to hold money in the short term or to ringfence for a specific purpose. However, it very rarely offers any more than that. It is important, therefore, to consider your savings as part of your overall investment strategy, to ensure that you hold cash for the right reasons.

We will continue to encourage clients to invest within diversified risk rated portfolios, always looking long term whilst ensuring cash is set aside for an emergency and contingency fund, as well as for planned expenditure. This robust process then leaves you to get on with more important matters, like deciding how you will spend your money.

Remember, it’s not how much money you have, but what you do with it that matters!

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