Has it really come to this? Just weeks away from the 31 October deadline, the UK still cannot find common ground with the EU, and a no-deal departure is looming fast.
Brexit stage right
There is still last-minute talk of concessions and backroom deals, but given recent experience, I wouldn’t hold your breath. Nobody has a clue what will happen next, so what in Brexit’s name should investors do about it?
A no-deal dust-up will inflict further damage on the UK economy. The online Brexit cost calculator reckons the EU referendum vote has cost us around £75bn so far, and that could accelerate without an agreement.
HM Revenue & Customs warns that businesses would have to spend an estimated £15bn a year on filling out customs forms for UK-EU trade, while the Institute for Fiscal Studies says no deal would drive UK debt to a 50-year high.
It will also hurt Europe. The UK is Germany’s biggest EU export market, and that country’s economy is already slipping into its first recession.
Brexit isn’t the only major financial-political threat to the global economy right now. The US-trade war is dragging on, now with the added complication of President Donald Trump’s potential impeachment. Political unrest in the Middle East is growing again. GDP growth is slowing everywhere.
Here’s how I’m responding.
1. Â I’m not selling a single stock or fund.
The doomsayers have been warning of a recession every year during what is now the longest stock market bull run in history. You didn’t sell then, and you shouldn’t sell now (unless you need the money in the next two or three years). You cannot second-guess the market in this way, because nobody has any idea where it will go next.
And with the average cash savings account paying less than 0.5%, against inflation of 2.7%, where would you put your money anyway?
2. Â Keeping my ammunition dry.
I have a bit of money to invest in the stock market, but I’m not parting with it just yet. As I’ve written before, I think Brexit turmoil could offer a chance to pick up good UK companies at knock-down prices. It could even be the FTSE 100 buying opportunity of the year.
3. Investing a set amount every month.Â
I’m self-employed and have a personal pension. I have set up a direct debit and pay in several hundred pounds, with tax relief on top. The latter is effectively free money from the government, incentivising me to save. I make my monthly payments regardless of what the stock market does, so I do not have to worry about whether it rises or falls. In fact, I actually benefit if share prices fall, as I get more stock for the same money that month. Then I reinvest my dividends and let the whole thing roll up for growth. You can do the same inside a Stocks and Shares ISA, if you prefer.
The next few weeks could be turbulent, bordering on chaotic. Nobody knows for sure. But my simple three-point plan should be enough to cope.