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Is Investing Like a Day at the Races…?

In the first of a new series of monthly investment blogs, our Investment Manager, Colin Moore, considers the potential impact of the UK ‘Brexit’ vote:

Returning from a highly enjoyable, although fiscally unrewarding, day at Chester races over the weekend had me inevitably reaching for equine parallels with regard to the UK’s shock (for some at least) decision to leave the European Union and the effect this is having on the financial markets.

The truth of the matter is that there are no meaningful metaphors to be gleaned despite the temptation to compare the highs and lows and risks and returns of gambling and suitable investing for the long term. To do so would imagine a race that lasts indefinitely, where a punter may back a horse for a period of several years before cashing out (while it still keeps on running) and where multiple horses may offer reasonable returns over the long term. No such race exists because investing is not a day at the races.

The decision of the UK populace to leave the EU has injected significant volatility into the markets, the result of the uncertainty that now hangs over the political and economic landscape which is likely to continue for several months. The Chancellor of the Exchequer and Governor of the Bank of England have issued statements in attempts to calm sentiment which may have worked to some extent but we must expect the volatility to continue for now.

In times such as these a little “Investment 101” is called for. Firstly, any investor must ensure they are taking the appropriate level of risk for their circumstances. Secondly, that the time-scale of investment should be for the long-term and finally that their investments are correctly diversified. This may seem simple, verging on the downright boring, and this is because that is exactly what it is. We are not standing by the winning post waving our betting slips in our hands.

For our clients, we invest in well-managed and diversified investments which match the risk appropriate to them as assessed by our advisors. As an example of the power of correct investing, I analysed the selection of medium risk funds that we recommend for our clients and the performance on the day after the referendum. The average performance for that most extreme of days was +0.6%. While it is not normal practice for us to reflect on a fund’s single-day return this result was significant enough to warrant highlighting. While this result is comforting we will continue to review and assess our recommended investments regularly in the same rigorous fashion that we always have and our team of advisors are always on hand to answer your queries.