Brexit and the DIY Investor; it’s all About Control

In a recent article (The New Rule of Financial Self Reliance) Muckler identified the increasing social division caused by political and economic turmoil and suggested that by taking personal control of their finances, DIY investors could restore levels of certainty around issues like life stage and retirement planning.

Just over a month since Britain voted to leave the EU there is an eerie calm – the pound has taken a battering, but the economy hasn’t melted down; commercial and residential property markets have gone into stasis but it’s not Chicago 2008.

Theresa May is doing the rounds with EU leaders and is apparently in no rush to officially serve notice by invoking Article 50 and it appears that meaningful economic indicators reflecting the decision to Brexit will not start to trickle in until after the third quarter of the year.

However, what the campaign and subsequent result did do was cause great social division – young and old, rich and poor, privileged and deprived, north and south; it is these rifts that may be the most difficult to repair as Britain seeks to build a new life as a singleton.

Demographically, the highest social classes – As and Bs – voted to remain and a significant proportion of the remainder of the population wanted out. The moneyed were in and those struggling with austerity wanted their country back.

The sense of injustice led to more than four million people signing a petition calling for a second referendum.

In a television interview a conspicuously well heeled Londoner commented that he personally knew no-one that had voted to Brexit; and that could just neatly sum up the current state of the nation.

A social elite feeling that they have been let down because someone was daft enough to offer a vote to those with insufficient grey matter to take what was obviously the only logical and rational decision, to them, and therefore there needs to be a re-run, or Parliament needs to overturn the result.

‘a conspicuously well heeled Londoner commented that he personally knew no-one that had voted to Brexit’

Those at the top of the social ladder, with the comfort that comes with a good job and financial security,  will mourn anything that impedes free movement around Europe and will fret about future prospects for the economy. Uncertainty has been created for this social stratum because they have had their reality changed by people that they could not, or chose not to influence, and have no connection with.

Many of those that chose to leave did so out of a similar sense of uncertainty – their communities had changed dramatically in a very short period of time and they felt no connection with, or ability to influence those that were making decisions on their behalf.

There have been many government initiatives to foster local engagement in decisions that affect daily life but the established social identity of many communities has been crumbling, with no strategy for its replacement.

Social identity determines a large part of individual behavior and can be a force for good, binding communities together in social engagement, or a force for division when a community feels threatened; a vote to Brexit could be the ultimate manifestation of a community that felt increasingly disadvantaged and unrepresented.

Whilst there may be general benefits to be had from high levels of migration, the costs tend to be localized with great pressure brought to bear on schools, housing and healthcare.

Many of those that voted to leave did so because they did not feel in control of events that were shaping their lives; it is human nature to prefer self-determination over control and a referendum in any other member state could easily produce a similar response.

Europe was a very different place when the EU was conceived; the key participants were the source of world economic growth and social advance.

Since then trade has become global, the walls have come down between east and west and the concept of a federal European bloc looks cumbersome and outmoded.

The result of the referendum shows that there is nothing that people value more than to be in control of their own destiny – to ‘take back control’.

Those that previously enjoyed that control – by dint of the fact that they had the money – could not understand that sentiment and therefore were surprised by the strength of the backlash; their uncertainty will come from facing a future that they did not vote for.

As weeks pass the fire and brimstone subsides and what is clear is that there was more rhetoric than fact on both sides of the argument; this causes yet greater uncertainty – at least if the victor had been peddling demonstrable facts we would now be settling down to life in a new reality.

Except that is not the case; what we have is the risk associated with change tinged with the lack of comfort that comes with uncertainty.

‘what we have is the risk associated with change tinged with the lack of comfort that comes with uncertainty’

Before any formal negotiation on Britain’s European future there should be a period of reflection and reform; politicians must think carefully about the substantive reforms that will be needed to address widespread social division and discontent.

Hopefully the reason you are reading this is because you have made some commitment to controlling your own financial future, and for experienced investors and those new to savings and investment alike, now is a time for similar contemplation.

Uncertainty pervades markets at the moment and never has there been a greater need for investors to fully understand the nature and risks associated with the products they are buying and how they may perform in any given circumstance.

Brexiteer and renowned hedgie, Crispin Odey, bagged himself £220m by calling the result correctly, but by definition an awful lot of money would have gone the other way.

Tempting though such a result may appear, most DIY investors will be looking to build a well diversified portfolio of investments and do so over a long period of time.

It is not possible to take uncertainty out of markets, but it is possible to ride out periods of volatility and, perhaps more importantly retain the feeling of being in control of your own investment portfolio.

It appears likely that the Bank of England will reduce interest rates in the next month or so and launch a stimulus package to ensure that the recovery in the economy does not stall.

What that means is even more meagre returns from savings accounts and a real struggle for those attempting to secure an income from their investments.

Throughout the site we look at the risk and reward characteristics of a wide range of investment products and as ever, if you are unsure or uncomfortable about making your own investment decisions, you should always take appropriate financial advice.

As a final word of caution, it is no coincidence that the FCA has launched its ScamSmart Investor initiative at this time; with the benefit of new pension freedoms, desperately few opportunities to achieve income and the current uncertainty of markets this is a breeding ground for fraudsters.

Remember, if that ‘one-off’, ‘chance in a lifetime’, ‘for the next 28 days only’, ‘only because I like you’ investment opportunity looks too good to be true – IT WILL BE.