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How I’m using the FTSE 100 to prepare for Brexit

Brexit is one of the most significant risks UK investors have to deal with right now. No matter what your opinion, it is already clear that the uncertainty surrounding what will happen when the UK eventually leaves the EU is having an impact on business confidence, and this is terrible news for investors.

Even if a deal is agreed between the UK and the EU before the country crashes out, there will still be a lot of questions that need to be answered before international investors can invest their money in the UK with confidence. And if the country does crash out, it could take even longer before business confidence returns.

What happens next? 

No one knows what will happen when the UK does leave the EU and if it will be a good or a bad thing. However, what we do know now is that the outlook for the UK economy is very uncertain, and if there’s one thing the stock market does not like, it is uncertainty.

Trying to invest in this environment is extremely difficult because, as I said above, we don’t know what the future holds for the UK economy and business environment. With this being the case, I have allocated a large percentage of my portfolio to the FTSE 100 in an attempt to navigate Brexit uncertainty and prepare for whatever comes next.

Global market 

The reason why I have invested such a large portion of my wealth in the FTSE 100 is that it is a global index. More than 70% of FTSE 100 profits come from outside the UK, which tells me that no matter what happens to the UK economy in the next two to four years, this index should continue to provide a return for investors.

The global economy seems to be in a good position right now with leading economies such as China, India and the US all powering ahead. Forecasts suggest global economic growth will average around 3.5% in the next few years, which should provide a fertile environment for the FTSE 100’s leading blue-chips to grow and continue to produce an attractive return for investors.

Inflation protection 

On top of this, the index offers a dividend yield of around 4.5%, which has helped me navigate rising inflation since the Brexit vote in June 2016. Indeed, since the vote, inflation has risen from approximately 0.5% per annum to over 3% at the end of 2017. With most bank savings accounts offering less than 1%, after factoring in inflation, I estimate savers have seen the purchasing power of their money deteriorate by approximately 4% over the past two years. 

With a yield of 4.5%, the FTSE 100 has not only helped investors protect the purchasing power of their money, but grow it as well. And because this yield is an aggregation of the dividend yields of FTSE 100 stocks, it is funded by profits produced around the world, which leads me to conclude that no matter what happens to the UK when it leaves the EU, the yield will continue.

So, that’s how I’m using the FTSE 100 to protect my portfolio from Brexit uncertainty and why I think you should do the same. 

Are You Prepared For Brexit?

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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.