Here’s how to beat a Brexit recession

Last week the Bank of England slashed its 2017 economic growth forecasts from 2.3% to 0.8%, the biggest cut since BoE forecasts started — and though that doesn’t indicate a recession, it’s perilously close.

On top of that, the National Institute of Economic and Social Research has suggested there’s a 50% chance of the UK economy falling into recession within the next 18 months, predicting at least a “marked economic slowdown” between now and the end of next year.

So what should we do, as investors to ride out any recession that should come along. Should we sell all our shares as many appear to be doing? Er, no. The thing is, we’ve seen recessions come and go in the past, including very recently, and rational long-term investors shouldn’t see them as disasters. In fact, a lot of canny investors look forward to uncertain markets as opportunities to buy up more shares cheaply.

Look at the last one

If we look back to the recession triggered by the banking crash, the big FTSE 100 slump really happened in late 2008 — but by the end of 2009, the index of top UK shares was back to pre-crash level. And if, instead of panicking and selling like so many did, you’d bought up depressed shares instead, you could have made a very nice profit in a very short time.

Looking at the wider picture, the level of the pre-crash peak of late 2007 wasn’t reached again until the first half of 2013. That’s an effectively flat five-and-a-half year period — and that’s bad, right? Well, no. Even if you’d taken no action at all over that period — no buying, no selling — you could have enjoyed annual dividend income of around 3% per year while your capital was effectively preserved, and that would have easily beaten cash ‘safely’ stashed in a savings account.

The big winners? They were the ones watching the downturn and carrying on buying — and it doesn’t even take any stock-picking expertise. Many people simply make regular monthly payments into index trackers — a low-cost fund that spreads its cash across the FTSE 100, for example. And those who just carried on doing that all the time the markets were falling benefitted by buying more shares each month — at the depths of the market crash, they could have been snapping up almost twice as many shares as they’d have got at the preceding peak.

Better off

The really sobering thought is that those who just kept on with their regular investments as if nothing was happening… well, they’ll be significantly better off today than if there’d been no recession and no stock market crash. Yes, a recession is good news for long-term investors.

Now, if there’s a Brexit recession, then I don’t see it as being anywhere near as good as the last one — I think Brexit could well set our economic growth back a decade, but we’re not going to see anything as drastic as the great banking catastrophe.

But the answer is the same. Don’t panic, just carry on with those regular investments (and pick up bargains where you see them), and look back in 10 years time at the great opportunity you’ve been served.

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