WITH the end of the financial year (April 5) falling before the date when the UK might feasibly leave the European Union, it seems prudent to continue with year-end planning.
As ever at this time of year it seems sensible to utilise the maximum ISA allowance, currently £20,000, as well as realising any capital gains within the allowable annual exemption, where appropriate (£11,700).
Although cash ISAs continue to be popular, it should be remembered that in the current low interest environment, the returns may well be less than the rate of inflation (1.9 per cent) thus resulting in a fall in the real value of the funds.
With such turbulence in the political arena, it is hard to imagine the investment world can continue unaffected. Indeed, the end of last week saw a difficult time for markets: a run of weak economic data and a shift in a closely watched bond market gauge rekindled concerns over slowing US and European growth.
Combine this with the Brexit uncertainty and it is not an easy time for investors. Wall Street had a particularly bad day on Friday, with a 2 per cent fall in the S&P 500 and a 1.5 per cent decline in the Dow Jones Industrial Average.
The yield curve saw an inversion, which is essentially a prominent indicator of an oncoming recession and this resulted in investors resorting to the safety of Treasury stocks, hence there was a significant rally in bonds.
It is often psychological factors that have a real impact on investors. Fear is one of the biggest barriers to fruitful investing and is probably the cause of more lost wealth than any other bias, even overconfidence. Fear of missing out is also a real factor and may result in investors ignoring the things which seem too good to be true (and usually are), such as an inordinately high yield. It should be remembered that there is no reward without risk. Equally there is a risk in being out of the market altogether.
Since the referendum in 2016, the UK stock market has seen an increasing level of fund managers reducing their weighting in the UK. Granted, there is indeed a risk to the UK economy, but it is also worth noting that just before Christmas the UK stock market was at a 30 per cent discount to peers, a 30-year low. Clearly just because something is cheap does not mean that it cannot get cheaper, but equally, it should be remembered that over 70 per cent of earnings of FTSE All-share companies come from outside the UK. It remains an incredibly opaque situation as it is hard to judge where Brexit creates game-changing operational challenges and where problems have been over or understated to suit political arguments. The picture is further muddied by sterling which has usually borne the brunt of market uncertainty.
We are frequently told that investment should be for the long term (at least five years) and perhaps this is the most important factor when looking at current market conditions: short term political noise should not be the determining factor when making investment decisions.
:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers. This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of Cunningham Coates Stockbrokers
