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Thinking of selling FTSE 100 shares before Brexit? You need to read this first

With Brexit fears continuing to be high, many investors may be considering the sale of FTSE 100 shares at the present time. This, of course, is entirely understandable, since economic and political risks often mean that investors become increasingly risk-averse.

However, selling shares today could prove to be a sub-optimal move. Not only could the FTSE 100 benefit from continued economic and political uncertainty surrounding the UK in the short run, the index appears to offer scope to generate high returns in the long run.

As such, now could prove to be the right time to buy large-cap shares, rather than sell them, despite ongoing uncertainty surrounding Brexit.

Currency changes

Since the FTSE 100 generates the vast majority of its income from non-UK economies, its members generally benefit from a weaker pound. For example, a FTSE 100 company may be listed in the UK and report in sterling, but a large proportion of its operations may be based abroad. This means that when it translates its income into sterling, it benefits from a weak pound.

Since Brexit has thus far contributed to a weakening of the pound versus other major currencies, the FTSE 100 could be expected to post further rises should current uncertainty increase over the coming months.

Long-term growth potential

Of course, weaker sterling is unlikely to last forever. As such, the growth potential of the FTSE 100 is arguably a more compelling reason to buy a range of large-cap shares at the present time.

Across a variety of sectors, large-cap shares currently offer wide margins of safety. This could lead to them offering high returns in the long run, since history has shown that the index has always recovered from its lows to post new record highs.

While buying stocks during periods of uncertainty could mean that there are paper losses in the near term, over a period of years it may allow an investor to access the best opportunities to generate capital growth. Therefore, should the uncertainty surrounding Brexit continue to increase, becoming an increasing net buyer of shares may be the most logical option for long-term investors.

Relative appeal

While retreating to less risky assets such as cash and bonds may be a worthwhile move in the short term for some investors, in the long run they are unlikely to outperform the FTSE 100. Likewise, the buy-to-let market remains uncertain, with valuations having potentially reached levels that are unsustainable following a decade of house price growth.

As such, if an investor is able to overcome short-term paper losses, holding stocks could prove to be the most profitable use of capital. Risks such as Brexit may naturally be viewed as occasions to focus on the return of capital, rather than the return on capital. However, to adopt this approach may mean that you miss out on high-quality stocks trading at appealing prices.

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Peter Stephens 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.