Brexit and Moola Portfolios

Posted by Simon Moore on October 8

We know that quite a few investors are anxious about what Brexit might mean for their portfolio. Now, just to be clear, we have no crystal ball about any Brexit outcome, or the potential timeline.

However, we do know a few things about Moola portfolios, which may be reassuring in the context of Brexit.

International Diversification

The first thing to understand is that most experts would agree that news about Brexit would primarily impact first the UK, and secondarily our EU trading partners. Now, Moola portfolios are invested in shares globally from the U.S. to Japan. Actually less than fifth of Moola share exposure, for typical portfolios, is in the U.K. and a little over a third of share exposure is in Europe as a whole (including the U.K.). Therefore, any positive or negative events in Europe may have less of an impact on your Moola portfolio than you might expect. Moola portfolios are generally global. That's precisely so the risk of any one country doesn't overwhelm the portfolio.

Currency Hedging

The other thing to know is that the ETFs in Moola portfolios use something called currency hedging. When you invest in companies abroad, as Moola portfolios generally do, then how those investments perform can depend, in part, on movements in the British pound against other currencies such as the U.S. dollar or the Japanese Yen. Currency hedging can help manage and potentially smooth some of those swings.

Things To Worry About

Regardless of your view of Brexit. There are always thing to worry about in the economy and the world. However, if we take a long view we can recall that past decades have included many wars, economic recessions, disease epidemics, political crises and many other unpleasant and scary things.

However, despite this, over the long-term diversified portfolios have generally provided robust returns. We suspect the future may be similar. There is always something to worry about, and bad things may happen, but historically if that stopped you from investing, then you may have missed out on what often turned out to be reasonable long-term returns for the diversified investor. Of course, this time may be different and there is no guarantee that the future will match the past. Still, historically the diversified global markets have generally delivered long-term returns even despite many worrying events.

So, remember Moola portfolios are less exposed to British and European shares than you might expect. Also, the risks of swings in the pounds are managed and potentially smoothed via currency hedging in the ETFs we use. Finally, historically fears of very bad economic outcomes generally have not come to pass for diversified investors. Of course, we don't know how Brexit will evolve, but the above gives us some reason to be positive for long-term diversified investors.

Written by Simon Moore

Simon is responsible for investing and related content at Moola. He was previously CIO of FutureAdvisor, a US digital advisor. His most recent book Digital Wealth, explains automated investing. He studied economics at Oxford, and completed his MBA at the Kellogg School of Management.

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