Financial Times Adviser: Is cash king as Brexit looms?

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The Pure Gold Company

27/03/2019

By Saloni Sardana

Mr Garg suggests: “Holding stocks and bonds would be the best strategy.”

Mr Rees explains the main source of foreign currency exposure in portfolios comes from investment in foreign equity markets, and it is the more adventurous portfolios that usually have a higher allocation to foreign equity markets.

Therefore, he asserts, portfolios with more foreign equities exposure are, in fact, more diverse in currency terms when compared with more cautious portfolios.

Mr Rees adds: “Given the outlook for sterling is so volatile, more cautious investors should think about allocating a small part of their fixed income allocation to high quality investment grade debt denominated in foreign currency, such as highly-rated sovereign debt, to add additional currency diversification.”

Mr Garg agrees with this view that investing in government debt could be one solution to minimising the impact of Brexit, but thinks clients should be focusing on emerging market bonds.

He says: “Emerging markets are currently one of the more attractive as their bonds are on track for their best quarter of returns in three years.

“India, for example, has a higher number of younger workers than the US and this will boost the economy much more than say in China, which has an ageing population.”

Josh Saul, managing director of the Pure Gold Company, says he has seen a 187 per cent increase in sales of physical gold bar and coins over the past four weeks, at the peak of Brexit-related turmoil.

Mr Saul also saw a 234 per cent increase in the number of people withdrawing equities within their pensions and self-invested personal pensions to invest in physical gold due to political uncertainty.

“They’re not only abandoning cash; many clients have sold equities or even property, and are buying physical gold, which tends to maintain or increase in value during times of crisis, to protect their wealth,” he adds.

Dennis Hall, managing director and financial planner at Yellowtail Financial Planning, says: “Only hold as much cash as you need to; a good financial plan will inform you how much is enough.

“Don’t react to Brexit, it’s a small localised issue that matters less if you’re a globally diversified investor.”

He recommends investors stick with equities in the long term, because “if we didn’t have Brexit there’d be another worry exercising minds needlessly”.

Key Points

  • While cash is a defensive asset, there are risks to holding too much of it in portfolios
  • Bonds can be a useful safe haven asset class in times of turmoil
  • Investors have been allocating to physical gold as a store of value

Why cash still matters

Brexit or no Brexit, clients may need to save cash for a number of other reasons.

Mr Hall thinks all clients should hold a proportion of cash should they want to buy a house, and more importantly, have two to three years of reserve funds saved up for essential expenditure.

Source: ftadviser.com

Piles of coins in front of graph on screen

“They’re not only abandoning cash; many clients have sold equities or even property, and are buying physical gold, which tends to maintain or increase in value during times of crisis, to protect their wealth,”

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