Stocks have been on a roller-coaster ride this year, rising to new highs and then slumping, erasing years worth of gains in just a few weeks. UK markets have been particularly badly hit as Brexit looms large over the outlook of every business.
In markets like these, it’s essential to keep your cool and look past short-term volatility. It’s always sensible to invest with a long-term outlook, and in the current environment, it’s even more critical to invest based on long-term fundamentals, rather than near-term uncertainties.
So, here are the three strategies I’d recommend to protect your portfolio in these weak markets.
Tried and tested
There’s plenty of evidence that shows over the long run dividends make up a large part of the market’s total return. With this being the case, I’m putting my trust in dividend stocks to help carry me through this rough patch. FTSE 100 dividend stocks I think are particularly attractive because more than two-thirds of FTSE 100 profits come from overseas, making them virtually immune to any Brexit fallout.
Companies such as BHP Billiton and BP should be able to maintain their above-average dividend yields, no matter what happens to the UK. Regions like China and Africa will continue to expand and require ever-increasing amounts of commodities to fuel their growth, even if Brexit turns out to be a complete disaster.
Simple is best
Whenever I look at a potential investment, the first thing I always do is try to work out what the business does. This isn’t always as easy as it may sound. For example, large banks have multiple income streams, some of which are more predictable than others, as well as huge, complicated balance sheets where it’s easy to hide skeletons.
In these uncertain markets, I think it’s more important than ever to avoid businesses with complex operations. I find that if I don’t truly understand the company and what it does, it’s hard to hold onto the stock when it declines, which can result in an early sale and loss.
Trying to predict macroeconomic trends is virtually impossible, even the experts get it wrong on a regular basis.
However, while it might be impossible to predict where one single economy, or company, might be one year from now, we can assume that 10 years from now, the global economy will be bigger and more developed than it is today. Regions such as the UK and Europe might continue to struggle, but India and China will pick up the slack.
As a result, I think buying companies with an international focus and presence in many markets around the world is the best strategy. As mentioned above, most FTSE 100 companies have a global presence, making the index highly attractive from this perspective.
Overall, in these weak markets, I believe it is best to stick with the tried-and-tested strategies of investing with a global focus, and relying on dividends to help smooth the returns in stormy waters.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.