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With the Brexit referendum looming, one of the foreseen consequences in case Britain leaves the EU is a diminished purchase power for the British Pound Sterling.

What would be the best way to minimise this risk, assuming one only has money in a bank account (ISA and current account)?

  • As an aside, the shortest odds on Brexit happening, given by any bookmaker is 5/2 - so they think the chance of it happening is around 29% – davidjwest Jun 2 '16 at 10:38
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The mathematical answer is for you to have a diversified portfolio in your ISA. But that's easier said than done.

  • This is indeed one possible solution, especially if the portfolio includes stocks and shares not exposed to the UK and Europe. But it is a risky strategy compared to holding cash (which I have assumed in my answer, not necessarily correctly!) – davidjwest Jun 2 '16 at 10:09
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    @davidjwest Diversification can be high risk or low risk. For example, for low risk you could simply diversify in different currency cash, holding euros, US dollars, etc. (cash and/or bonds). This would technically be less risky than just holding sterling. (I don't know if you can do that in an ISA.) – Chris Degnen Jun 2 '16 at 10:13
  • @davidjwest I would add, just to be clear, diversification isn't just a case of holding a variety of investments or currency. Their historical performance should also be minimally correlated, so that they don't all bomb if the market takes a turn. (Put simply.) – Chris Degnen Jun 2 '16 at 10:27
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    can you hold foreign currency under an ISA wrapper? – davidjwest Jun 2 '16 at 10:35
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    Have to say, this looks like the answer to the question. And @davidjwest also raises an interesting question - though I think the answer is you can't (not sure though). – Sarah Mann Jun 2 '16 at 14:15
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GBP has already lost part of his value just because of the fear of Brexit. An actual Brexit may not change GBP as much as expected, but a no-Brexit could rise GBP really a lot.

  • Doubtful. Think markets are not pricing in a high probability of Brexit. – SMeznaric Jun 8 '16 at 17:15
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If you are really worried your best bet is to move all your cash from Sterling into a foreign currency that you think will be resilient should Brexit occur.

I would avoid the Euro!

You could look at the US Dollar perhaps, make sure you are aware of the charges for moving the money over and back again, as you will at some stage probably want to get back into Sterling once it settles down, if it does indeed fall.

Based on my experience on the stock markets (I am not a currency trader) I would expect the pound to fall fairly sharply on a vote for Brexit and the Euro to do the same. Both would probably rebound quite quickly too as even if there is a Brexit vote it doesn't mean the UK Government will honour the outcome or take the steps quickly.

** I AM NOT A FINANCIAL ADVISOR AND HAVE NO QUALIFICATIONS AS SUCH **

  • Unless you have a strong idea of which way the vote will go you don't know whether holding euros will be good or bad. Guessing is a gamble. If you don't want to gamble, diversify. That's how to mathematically minimise risk and exposure. – Chris Degnen Jun 2 '16 at 10:19
  • > "even if there is a Brexit vote it doesn't mean the UK Government will honour the outcome". True in principle, but I would think it very unlikely for this government or the next to go against a referendum result.. – nsandersen Jun 2 '16 at 11:07

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