Last Friday I was woken up by a four word message revealing the result of the UK’s EU referendum. That message was more effective than my alarm as I jumped, rather than forced myself out of bed. Turning on the TV to check that there wasn’t an error – the result stood was confirmed.
To say this was not the result I was expecting would be understatement of the year. I had planned to post on something else today but figured there was no way of avoiding the Brexit result and the far reaching implications it will have, particularly on Personal Finance. I’m pretty sure boosting credit scores or earning an additional 0.5% on your savings isn’t at the top of many British agendas today.
We are officially in unchartered territory, uncertainty everywhere clarity nowhere to be seen. Awaiting a new Prime Minister and Cabinet to make clear what Britain’s position will be going forwards. It will be months if not years before we understand the full impact of this vote and government plans are unveiled.
With all of this uncertainty, here are my tips to help you get your financial house in order and survive post-Brexit:
Step 1 – Set up an Emergency Fund
Now it is always advisable to have some cash set aside for a rainy day, but even more so with talk of businesses reviewing investments within the UK and a potential impact on jobs. To ensure that you are able to cover you living costs, should your job be impacted, set aside money to cover 6 months essential living costs. This is a general guide; some people may wish to save more, whilst those with significant assets may wish to keep less (with a view to selling other assets to raise funds if required).
If you do not have any emergency savings have a look through your existing outgoings to see if there are ways in which you can cut down and save.
Step 2 –Maintain a Diversified Portfolio
This is the ultimate defence against uncertainty and protects you by minimising the impact of losses in a particular area of your portfolio.
In the run up to Brexit my UK investments had gone from being 10% up, to a loss position. This really drove home the importance of diversification, which is just a more sophisticated way of saying “don’t put all your eggs in one basket”. Despite the fall in my UK investments the value of my portfolio remained up overall as other areas such as the US remained strong.
Active investors can have a look at the UK Value Investor’s 3 Components of a well -diversified portfolio with tips on how to avoid overexposing your portfolio to a particular company/industry/region.
For passive investors, who invest in funds, those funds should already provide you with some diversification, due to investments in a variety of:
- Geographical regions (e.g. US, Europe, Asia Pacific)
- Asset classes (e.g. stocks, bonds, cash, real estate)
Ideally your portfolio should be diversified across each of these areas to boost your returns whilst reducing your risk.
Remember a good diversification strategy should be used in good and bad times, as the aim is for losses in one area to be offset by gains elsewhere, so stick with it.
Step 3 – Do your research before making BIG financial decisions
Looking to buy a house? It was already reported that many were delaying big transactions until the outcome of the referendum was clear. Here are some articles assessing the impact of the referendum on various different areas:
- The UK’s EU Referendum: All you need to know – BBC
- House price fall could follow Brexit, say experts – Guardian
- EU exit expected to end UK house price boom – FT (search result)
- Europe makes Brexit-voting UK look like a safe haven – FT (search result)
- After the vote, chaos – The Economist
- EU Referendum: Five changes to your finances following the vote – BBC
Step 4 – Don’t Panic
Admittedly there’s a lot of doom and gloom and around at the moment. Nonetheless I know I have never made my best decisions whilst panicking and I can imagine that’s the case for most. There has always been uncertainty over the future; the Brexit vote has just raised it somewhat.
Until we receive more information on government plans (e.g. arrangements to be made with EU, whether there will be another general election) the best thing we can do is focus on what we can control. You know your goals, stay focused and do the best that you can in the current situation to keep moving towards them.
This is what I will be doing – I wish there was definitive guide to dealing with Brexit but with so many moving parts it’s impossible. What we have to do now is to strap ourselves in for what will be a bumpy ride, try to cushion ourselves on the way, whilst looking for the opportunities (of course)!
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