Could politics make you a profit?

When uncertainty comes calling – from any angle – we’re used to being warned to hold fast, to stay the course, and any number of other journey-related metaphors for doing absolutely nothing until this particular period of volatility settles back into calm.

There’s no doubt that advice is valuable, crucial even, for most of the bizarre sets of circumstances UK consumers, savers, investors and homeowners have been found themselves facing at various times in the last 10 years.

None have been as unprecedented and unpredictable as the one playing out right now.

Unless you’ve been hiding under a rock, and frankly who could blame you, you’ll know that the political upheaval since the triggering of Article 50 in the process to leave the European Union unleashed economic uncertainty. That uncertainty threatens every aspect of our financial lives from the security of our incomes to the cost of a loaf of bread.

In times like these, there’s no doubt that securing the foundations of our money matters; building up savings, paying off debts and holding our nerve with our existing investments is great advice.

Investing is about planning for the long term, the far horizon on a voyage across an ever-changing sea. This is not the time for short-term reaction, and it’s really not a great idea to attempt to time the market as a non-professional dabbler, we’re rightly told.

But as one wave of volatility follows another, some savers and investors are becoming increasingly twitchy about the opportunities they could be missing too. So we asked a panel of experts for their take on what to do next.

“Turning a blind eye to how the political and economic landscape is changing, particularly at moments of volatility, can be a risky strategy if you’re looking to grow your money,” says Kevin Brown, savings specialist at Scottish Friendly.

“There can be a direct correlation between significant events and what happens to the UK’s economy and financial markets. We have found that since the EU referendum, savers using cash ISAs have actually lost money in real terms due to a combination of rock-bottom interest rates and a spike in inflation.

No time like the present

“By having a more informed view of what factors might be affecting your money, you can start making smarter decisions about how to save or invest for the future,” Brown adds.

“Of course, it remains unclear what will happen next with Brexit. However, understanding the dynamics of the economy should provide you with a better chance of receiving more from your savings and investments.

“In the current climate, it could be sensible to invest some of your money in stocks and shares ISAs rather than hold all of your money in cash, as there is potential for greater returns in the longer term.”

The political landscape can have a big impact on the short-to-medium-term performance of investments, but to benefit, you often need an exceptional insight into events and how they will pan out, warns Adrian Lowcock, head of personal investing at Willis Owen.

“There are two things that can be achieved by looking at political markets events – protecting your investments from any falls or jumping on opportunities which may arise from the uncertainty they create. Both are difficult to achieve.

“It may seem at odds with events going on at the moment but if you pay too much attention to the political situation you may never actually invest; there is almost always something going on to put you off.”

Amending the mindset

“People think markets simply grow, but the reality is they’re as bumpy as a rollercoaster most of the time, not just in times of uncertainty,” notes Jamie Smith-Thompson of Portafina.

“When markets are on the up, people quickly invest more. When they nosedive, people get scared and disinvest. Then there’s a market upturn and in goes the money again.

“With this in mind, knee-jerk reactions to stock market volatility is a bad idea. For example, take the Brexit announcement back in June 2016 which, at the time, was an unprecedented event. Within minutes of opening the day after the vote the FTSE 100 had lost 8.7 per cent of its value. By the end of July, it had subsequently grown by 16.2 per cent.

If you have a little extra to invest in your pension during these downturns, you will get more value for your money as the markets rise again, Smith-Thompson says.

“That’s not to be glib about the possible impact of current events. Downturns can be unsettling. History shows us that stock markets have always risen over time, though, so it’s vital to take a long-term view.”

When it comes to investments such as your pension, the professionals agree that making sure your money is globally diversified is key, even with the wider whisperings about the next global downturn. That way, if there is an issue in one part of the world, it won’t affect all of your funds.

“Then, check to see if your money is invested across different asset classes. These could be equities, property or fixed-interest investments such as bonds. It’s all about spreading your potential risk across many baskets,” Smith-Thompson adds.

“This will help to offset decreases in your investments no matter what is going on in the world.

Now is also the time to focus on valuation, the price you can invest at.

“Over the longer term it is usually the companies themselves and the price you pay which determine the returns you will receive,” says Lowcock.

“This is important, as the best approach for an investor to take is to try and look through the noise of politics and focus on the value or price you can invest at.”

But there is no doubt that for many of us, this could all quickly descend into a high-stakes tightrope walk between responding intelligently to wider influences and trying to time the market.

So where exactly do investment professionals suggest we consider squirrelling our hard saved money, to make the most of the current storm without jeopardising our long-term plans?

“Political turmoil creates uncertainty and markets hate uncertainty which is a potential worry for investors. However, for investors that are prepared to take some risk and a long-term view, market volatility can also create buying opportunities,” notes Ryan Hughes, head of active portfolios at AJ Bell.

“UK equities in particular have become well and truly out of favour not just with UK investors but with overseas investors too. This has seen many traditional UK equities sell off to the point when many are yielding well above long-term levels and this may entice investors. A good way to get exposure to this opportunity is via a fund which adds a layer of diversification over buying individual stocks.

“The Troy Trojan Income fund is worth considering. It takes a long-term approach with an aversion to capital losses which gives a focus on companies that others are shunning. As a result, this UK equity income fund with a strong long-term record is now yielding over 4 per cent.”

Another option for adventurous investors is to look at a particular sector. “Insurance for example is a sector that often goes under the radar but insurance companies have a fantastic ability to generate cash regardless of the economic environment, as we all know through our ever-increasing insurance premiums,” Hughes adds.

“The Polar Capital Global Insurance fund is highly unusual in focusing on this area but they are experts in this specialist field and this comes through in the quality of management. The strategy has relatively low correlation with global equities and therefore adds useful diversification to an existing portfolio of traditional equities.”

In general then, it’s not worth worrying too much about the noise coming from Westminster, says Stuart Hutton, a chartered wealth manager for Raymond James.

“The distance between the long-term market’s view, and politicians’ short-term vote-catching rhetoric, will often be forgotten.”