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The danger of waiting for Brexit

By John Hayward - Topics: BREXIT, Interest rates, Investment Risk, Investments, spain
This article is published on: 16th October 2018

There are many things that we don´t know the answers to regarding Brexit. There are even questions that we don´t yet know. However, some facts are known. One of these is concerning investing, or not, since 20th February 2016. This was the day that David Cameron, the then Prime Minister, announced that there would be a referendum on the UK´s membership of the EU. People have been fearful due to the uncertainty as to what will happen post-Brexit.

In the last two and a half years, life has continued and investment markets have risen significantly. At the same time, inflation hasn´t disappeared just because Brexit is on the menu. Figure 1 below shows how the FTSE100 has performed since 20th February 2016 along with the UK Retail Price Index. With dividends reinvested, £100,000 would now be worth £131,000.

If we adjust for inflation, this would be more like £119,000, but still a 19% increase. If the £100,000 had been left in a bank account, with no interest which is commonplace these days, the inflation adjusted value would now be more like £91,000. Waiting for Brexit has cost the wait and see person £9,000.

Figure 1. Performance of the FTSE100 since the referendum announcement in February 2016 along with the UK Retail Price Index.

There are people who are not happy taking on investments which carry risk. If we ignore the risk of inflation for the time-being, we have solutions which can cater for those who are happy taking some investment risk but without the volatility of stocks and shares. Figure 2 shows that an investment with approximately an eighth* of the risk of the FTSE100 has still managed to perform well, certainly when compared to inflation.

One must bear in mind costs, but even allowing for these, people who were invested through us on 20th February 2016 would have seen an increase of around 15%. Taking inflation into consideration, this would produce a figure of around 5%. However, comparing this with not being invested would have left the “wait and see” person some £14,000 down.

Figure 2. Performance of a low risk investment along with the UK Retail Price Index

With the exchange rate between GBP and Euros down about 12% over the same period, the need to receive more income from investments has become even more important, especially for those with income in GBP and costs in Euros. Losing 20% in real spending power has proven to be a tough pill to swallow. Get in contact so that the possible “Never Ending Story” called Brexit doesn´t lose you even more over the coming years.

* Source: Financial Express

Article by John Hayward

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