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3 things the Brexit crisis reminds us about investing

By the end of today, we’ll have a far better idea about where we stand with our EU departure. Or will we?

Speaker John Bercow’s decision to rule out another vote on Theresa May’s deal unless it’s sufficiently different from the motion rejected by MPs last week is the latest twist in the seemingly perpetual drama that is Brexit. 

I won’t bother trying to come up with all the different permutations that lie before us (I’m pretty sure MPs aren’t aware of them all themselves yet).

Instead, I’ll just remind you of three things that this sorry farce has reminded us about investing in a crisis. 

1. Don’t bother with timing

It’s now almost three years since people voted over whether the UK should leave the EU. If you’d pulled your money out of stocks very shortly after the referendum, you’d have been very unhappy indeed. After an initial fall, UK shares rebounded strongly, so much so, the FTSE 100 set a new record last May.

Since then, we’ve had both a sustained dip over the second half of 2018 followed by a welcome bounce in prices since the beginning of 2019.  

What does this tell us? Simply that it’s impossible to predict the direction of indexes markets over the very short term. 

As such, it makes sense to drip-feed your money into stocks (and other assets) — known as ‘pound cost averaging’ — rather than trying to time the bottom. 

In addition to relieving you of the need to predict the unpredictable, this strategy also means you’ll be in line to receive dividends from companies that are just getting on with the job

2. There will always be another crisis

Regardless of whether you voted to leave, remain, or didn’t vote at all, there will come a time when we can all look back on this period of political drama and (briefly) laugh at how farcical it became. Probably. 

At this point, our jittery nerves will then focus on the next threat to our wealth, such as the scary amounts of corporate debt, the slowing of growth in China, or some ‘unknown unknown’ that’s still to rear its head.

Save not investing at all (which would be a tragedy for your long-term wealth), there’s no way of avoiding any of this. The one thing about crises is that they’ll never go out of fashion.

Aside from continuing to invest regularly to smooth out returns, all Foolish investors can do is ensure their portfolios are aligned with their tolerance for risk. And if the last few months have made you want to hide behind the sofa, there’s an easy way of achieving the latter. 

3. Get diversified

It’s natural to keep a lot of your money in UK-focused stocks given that these companies are familiar to us. However, a ‘home bias’ has its limitations. The more you depend on businesses whose survival is, in turn, largely dependent on the health of a single economy, the greater the risk.

So, while I’m not suggesting moving away from individual stocks, the UK, or both completely, it can make sense to have at least a proportion of your wealth in low-cost trackers or exchange-traded funds that invest in companies around the world.

For those interested, I’ve written about one of the most popular funds here.

Are You Prepared For Brexit?

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Paul Summers has no position in any of the shares 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.