3 post-Brexit investor survival strategies to consider

Credit: Kris Sage

Following the decision of Britain the leave the European Union – known as Brexit – investors have seen market volatility jump.

In Australia, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) fell by 3.2% on Friday, recovered 0.5% on Monday, was back down again by 0.7% yesterday, and so far this morning is up 0.7%.

Where it ends today and then goes tomorrow is anybody’s guess.

The problem for investors is what to do and how to cope with this volatility. The first question you should be asking yourself is can you sleep at night with all this volatility? If not, you may not be suited to investing directly, and might want to consider handing your funds over to a professional fund manager. Either that or consider diversifying your portfolio into other asset classes – as we outlined here.

If you are coping with the volatility, then these three strategies can help you to ride out the crisis.

Do nothing

As many readers following the Motley Fool would know, most of the time the best thing to do is nothing. Sit tight and stay the course, and over the long run, this type of approach has been shown on many occasions to be far more effective than trying to sell out and buy back in.

Consider that the best time to buy stocks during the GFC was at maximum pessimism in early 2009. But if you had sold out before that, how would know that that was the best time to buy back in?

Right size risk

It’s possible that your portfolio and allocation to individual stocks has gone out of whack as some shares have soared and others have sunk over a period of time.

To give you an example, my SMSF used to own shares in each of Amcom Communications, M2 Group and Vocus Communications Limited (ASX: VOC). All three were rolled up into one company – Vocus – and at one point became 15% of my portfolio. For some, that might be an uncomfortable position.

Now might be the time to consider rebalancing your portfolio, ditching the weeds and watering the flowers. Dump the stocks that you may be no longer comfortable with, and use the proceeds to buy shares in the companies that are doing well.

It could also be a reasonable time to gradually change your asset allocation to other asset classes. If you are nearing retirement, as an example, you might want to consider reducing your equity exposure and increase your allocation of fixed income securities.

Increase your contributions

Dollar-cost averaging makes plenty of sense during market falls. If you are putting regular amounts of cash to work in the stock market, increasing that amount when markets fall can be a good strategy. And if you aren’t contributing any funds to your superannuation beyond your employer’s contribution, this could be an opportunity to start – or even increase your savings.

How 1 Man Turned $10K Into Over $8 Million

Discover how one man turned a modest $10,600 investment into an $8,016,867 fortune. Learn more about this man and how you can start down the path toward financial independence. Simply click here to learn more.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.