While there are always risks facing the stock market, at the present time many investors are rather nervous about the prospects for the world economy. As such, share prices have been volatile in recent months and looking ahead, these three risks could cause further challenges for your portfolio and retirement plans.
Brexit
The most obvious threat to share prices is the EU referendum on 23 June. Part of the reason why many people are undecided on whether to leave or remain is that they say there’s a lack of factual analysis as to what will happen if Britain exits the EU. In fact, both sides of the debate have been accused by the other of providing opinions rather than cold, hard facts.
The problem, though, is that Brexit would be an unprecedented event. As such, nobody can say with a very high degree of certainty what will happen in the short or the long term if Britain decides to leave the EU. Therefore, facts about a post-23 June world are very difficult to generate.
One thing that does appear likely is that if Britain leaves the EU then it will lead to uncertainty in the short run. This could cause investors to adopt a more risk-off attitude and the FTSE 100’s price level could come under pressure. As such, and while there are no guarantees that this will happen, Brexit is a risk to all UK investors’ portfolios and retirement plans in the short run.
US interest rate rises
Remember the US interest rate rise in December? It was supposed to be the first of a handful over the following 12 months but almost six months later and there has been no further monetary policy tightening from the Federal Reserve.
That’s because global stock markets became exceptionally volatile and went into reverse following December’s interest rate rise. While the same degree of problems may not present themselves when rates next rise, it could cause investors to become increasingly nervous about the prospects for the global economy. And with there being the potential for a rate rise as early as next month, a US interest rate rise is a real risk to investors’ portfolios.
A new US president
By the end of this year, the US will know who its next president will be. Whether it’s Donald Trump or Hillary Clinton, a new president represents change from the status quo. As ever, this is likely to cause a degree of uncertainty among investors, since historically they’ve preferred continuity over change.
Certainly, change can prove to be a good or a bad thing. But with the US economy having recorded upbeat economic data in recent years, investors may be concerned about the potential impact of new policies and new ideas on the US economy. And with the US still being the largest economy in the world by far, it’s likely to have a major impact on the retirement plans of UK investors.