16 October 2018

Why you shouldn’t go for cash until Brexit uncertainty clears

We certainly live in interesting times. At the time of writing, nobody knows what’s happening with Brexit. Will a deal be reached to prevent a disorderly exit? Either way, what will be the impact on the UK and European economies? And how will markets respond?

In the circumstances, it’s understandable that many investors are considering reducing their exposure to equities until things become clearer. Investing is a hugely personal matter, and nobody should take more risk than they’re comfortable taking.

However, going to cash is not a decision that should be taken lightly, without serious thought or without seeking the opinion of a competent financial adviser. Regardless of Brexit, there’s a very strong case for keeping your portfolio exactly as it is.

So, if you’re thinking of sitting in cash while events unfold in Brussels, here are some things need you need to bear in mind.

1. Timing the market is notoriously difficult.

The evidence shows that it’s almost impossible to do it accurately with any long-term consistency, and the professionals are little better at it than the rest if us. And remember, you have to be right twice; you might get out at the ‘right’ time and then spoil it all by mis-timing your re-entry.

2. All known information is incorporated into market prices.

Current valuations reflect everything we know about Brexit and the likelihood of all the different outcomes. Do you honestly know something about Brexit that the rest of the market doesn’t?

3. It’s new information that causes prices to rise or fall, and that, by its nature, is unknowable.

True, government ministers and officials involved in the negotiations may be privy to vital information, but they’re bound by insider trading regulations so can’t act on it anyway.

4. New information is incorporated into prices within seconds, even milliseconds.

If there is a significant development over the coming months, it will be absorbed so quickly by the markets that by the time you get to act on it, prices will either have risen or fallen already.

5. Correctly predicting the outcome of the Brexit negotiations won’t, in itself, be of help.

Unless of course you bet on it. To profit on the financial markets, what you need to do is predict how those markets will respond to the outcome you’re expecting, which is extremely hard to do.

6. Markets often react to big political events in unexpected ways.

When an event is widely considered to be negative, markets often wobble initially but then recover and resume the course that they were already on. That’s exactly what happened after the Brexit referendum in 2016 and Donald Trump’s election later that year.

7. The idea that there will soon be clarity over Brexit and markets will ‘return to normal’ is unrealistic.

It may well be that a deal is reached soon that takes Britain out of the European Union. But, as everyone knows by now, the divorce will be hugely complicated, and it may take many years, decades even, before the lasting effects of Brexit are clear.

8. Important though it is, Brexit isn’t the only show in town.

There’s uncertainty everywhere you look, whether it’s the future of President Trump, the prospect of a global trade war or rising tensions between Russia and the West. And those are just the obvious risks. Regardless of whether the UK strikes a win-win deal with the EU that pleases everyone, or there’s a painful, disorderly exit, markets could still fall or rise sharply for a completely different reason.

9. There will always be reasons to bail out of equities.

Throughout the long bull run that began in 2009, there have been scores of plausible arguments for getting out while the going’s good. If you had heeded any of them, you would have missed out on gains. Will it be Brexit that finally brings the bull market crashing to a halt? The bottom line is that nobody knows.

Again, you have to do what you think is right, and only time will tell what the ‘right’ decision proves to be.

Whatever you do, though, beware of acting on emotions. Assuming that you and your adviser are comfortable with the risk you’re taking, and that your portfolio is thoroughly diversified and has relatively recently been rebalanced, the rational response is to sit tight and watch the political drama unfold.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.

Sign-up for our Carbon Catch-Up Newsletter


Sign-up for our Carbon Catch-Up Newsletter.

* indicates required

Carbon Financial will use the information you provide on this form to keep in touch with you and to provide updates and marketing. Please indicate below that you are happy to receive our updates in the future:

You can change your mind at any time by clicking the unsubscribe link in the footer of any email you receive from us, or by contacting us at We will treat your information with respect. For more information about our privacy practices please visit our website. By clicking below, you agree that we may process your information in accordance with these terms.

We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp's privacy practices here.

Contact us today...

We have offices in Edinburgh, Glasgow, Aberdeen, Perth and London. You can contact us at any of our offices, or by email.

Carbon Financial Partners Limited is authorised and regulated by the Financial Conduct Authority. The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK.

The Financial Conduct Authority does not regulate some forms of tax advice.
Registered in Scotland #SC386400.
Registered Office: 61 Manor Place, Edinburgh EH3 7EG, Scotland.
© Carbon Financial Partners 2023

Client Account | Personal Finance Portal | Privacy Notice | Cookies