Time To Take Interest In Your Investment Options

With Brexit disrupting currencies and markets, this is a good time to review how you structure your finances and consider alternative options for investing.

With Brexit disrupting currencies and markets, this is a good time to review how you structure your finances and consider alternative options for investing.

This is a historic year for the UK. After the unexpected Brexit vote in June, the Bank of England (BoE) has now cut the interest rate to an all-time low of 0.25%.

All this has clearly unsettled the British pound. Since the referendum, sterling hit a 31-year low against the US dollar and dropped as much as 15 cents against the euro. While it has not all been downhill post-Brexit, the pound’s value plummeted again on the interest rate announcement.

How does this affect your pocket?

The prolonged low interest rate climate is bad news for savers. Bank deposits that are earning next to nothing are now set to drop even lower. And it could get worse. Although the BoE Governor strongly opposes negative interest rates, he confirmed he may cut the rate again to prevent a Brexit recession.

In this highly volatile time for sterling, you are also more vulnerable to currency exchange risk. It is natural for Britons to keep most of their savings and investments in British pounds. However, when you are living abroad and spending euros, it can be much more expensive to take your income, like your pension, in pounds.

On the other hand, currency movements can present opportunities. It is a good idea to seek advice about what would work best for you. Ask your adviser about investment structures that can help you make the most of your finances in this difficult climate. You could, for example, limit currency exchange risk and maximise your income with options that allow flexibility to invest in different currencies and convert them when it suits you.

Are banks the safest option?

Many people worry about the risks of investing money for capital growth, but overlook that there are also risks with leaving money in the bank.

Even the biggest banks can fail. Regulators regularly undertake ‘stress tests’ to gauge whether banks have enough of a financial ‘cushion’ to withstand a severe economic shock – and they do not always pass with flying colours. In the latest European Banking Authority stress test, banks from Spain, along with Italy, Ireland and Austria fared worst. Although British banks scored higher, a recent academic study claims that collectively the four biggest UK banks are £155 billion short of surviving a financial crisis.

Besides potential institutional failure, money in the bank can be eaten away by inflation over the longer term. If you want your savings to keep up your standard of living, you need to maintain your buying power over retirement with investments that grow over time.

Future-proof your finances

With Brexit likely to disrupt currencies and markets for a while, this is a good time to review how you structure your finances and consider alternative options for investing. By seeking professional advice, you can establish a savings and investment strategy that suits your particular circumstance, aims, time horizon and attitude to risk.

A well-diversified portfolio that spreads investments across different regions, asset types, sectors and currencies will limit your exposure in any one area. This means you will be best placed to ride out this long low of interest rates and currency turbulence in these uncertain times.

Any questions? Ask our financial advisers for help