Investing would be a lot easier if we could all predict the future. For example, if we knew how the UK will leave the EU at the end of March, it would be a lot easier to invest accordingly.
As it stands, we don’t know what will happen when Brexit becomes effective and whether or not we will leave the EU with a deal in place.
We also don’t know how the market will react. Some analysts have suggested the value of the pound will collapse if the UK crashes out of Europe with no deal. Other analysts have suggested the Bank of England will rush to raise interest rates to try and offset rising inflation, which will come as the result of higher tariffs on imported goods and services.
A sudden spike in interest rates could force many companies throughout the UK into liquidation as they struggle to meet rising interest costs. That’s not to mention any extra fees they might have to deal with as a result of increased delays and checks at UK borders.
A deal agreed?
The worst forecasts suggest the UK economy will plunge into a recession, banks and businesses will collapse, unemployment will rise and stock markets will fall with a no deal Brexit. Those are the worst-case forecasts. On the other hand, some more bullish analysts and investors have speculated that the fallout from a no deal will be manageable.
Indeed, in recent weeks and months, there have been a number of agreements put in place between the UK and Europe that will ensure the continuity of vital services no matter what happens at the end of March.
So, if the UK crashes out of Europe with no deal, the worst forecasts suggest the economy will collapse, while the best suggest the fallout will be limited. But what if a deal is agreed at the last minute? How do we react then?
Impossible to tell
The problem is, we don’t know what will happen between now and the end of March, so it’s impossible to plan. You could prepare for the worst, but what if the worst doesn’t happen? Or you could plan for the best case scenario, but what if a significant UK bank suddenly collapses at the beginning of April? If the unexpected does occur, it could upset your carefully planned post-Brexit investment strategy.
With this being the case, I’m making absolutely no changes to my portfolio over the next six months. I have a large percentage of my portfolio invested in the FTSE 100 as I believe the UK’s leading blue-chip index will continue to generate returns for investors no matter what happens after March.
As more than two-thirds of the index’s profits are generated outside the UK, the long term impact on the index from a no deal Brexit should be limited. In the short-term, it’s impossible to tell how the index will trade, and that’s why I’m planning to ignore it over the next six months.
When the dust has settled, we should have more clarity on what the future holds for the UK’s relationship with the EU and the UK economy and only then can we make an informed decision on what investments to hold after Brexit.
