Sky News recently launched a pop-up TV channel dedicated to Brexit-free news. I welcome the move! With no clear end in sight to the Brexit drama, so many of us are only too relieved to take a break from the UK’s three-year divorce talks from the European Union (EU).
Over the past few years, continuous volatility in the price of most stocks as well as the value of the pound against other major currencies has made shareholders rather nervous. In general, businesses link economic prosperity to political stability, which increases investor confidence. Today, I’d like to discuss why we should still invest regularly without paying too much attention to the daily noise in the markets.
Remember how bad things were, when…
Many of our readers are old enough to have lived through a number of ‘interesting times’ – the attempted assassination of US President Ronald Reagan, Tiananmen Square protests of 1989, the fall of the Iron Curtain, 9/11 (when I was actually working in New York), the Great Recession of 2008/09, the Greek bailout crisis, and more recently the Brexit referendum in 2016, as well as the trade wars between the US and China… the list goes on.
This article is not about politics. However, major international events and the actions of governments can have an important effect on our daily lives.
Corporations may decide to cut down on capital goods, real estate development, software updates or other investments, which in return would be drivers of productivity growth. Continued geopolitical risks also cause fatigue among retail investors.
Yet these external events should not get in the way of a long-term, sensible personal investing strategy. Investing is not a sprint, but rather a marathon.
Diversification may work better than second-guessing
For most of us, the global political landscape is complex. And constructing a portfolio of assets that can enable us to weather various geopolitical storms is not always easy. Investors often hear that one of the most important investing rules to remember is to diversify. To put it simply, diversification is all about reducing risk.
An option for the average investor may be to consider low-cost exchange-traded funds (ETFs), which track popular stock indices both in the UK and globally. For example, if you are interested in dividend stocks, then the iShares UK Dividend UCITS ETF may be an ETF to include in your portfolio. As one of the highest-yielding markets in the world, the FTSE 100 currently has a generous dividend yield of 4.5%.
For those investors who may feel overwhelmed by the effect of fluctuations in the pound or domestic shares in the short run, looking beyond our borders is a possibility too. An ETF to buy into could be the FTSE All-World UCITS ETF, which tracks the performance of a large number of stocks worldwide.
The Foolish takeaway
Financial markets despise uncertainty and major political events in general generate a great deal of unpredictability. However, saving regularly and investing with a clear focus would help most of us achieve our longer-term financial goals.
For example, diversification, either by sector or geography, may provide a relatively defensive investment opportunity for many of our readers. If you’re unsure about which companies may better suit your needs, you may want to talk to a financial adviser first before moving forward with a specific type of investment.
