Hello all,

UK investor here.

I pretty much always just have a buy and hold strategy with a view to never worrying and simply holding. This is the case with the money I have in index funds. However, here in the UK we are facing a very unique situation. With Brexit, at least for the short to medium term, it will make us poorer. We will have a weaker currency, house prices might go down etc.

My question is how one would shield themselves from this? I currently have quite a lot of cash (around £1m). I am looking to buy a property in cash soon so I could simply hold the cash and wait and see what happens. A problem is that currency can fall all of a sudden and quicker than property, especially with something like Brexit. There are probably foreign investors waiting to see what happens and then purchase property.

I could also try and get out of Sterling for the time being, I am not sure as to how the best way to do this. If I were not buying a property, I would simply put the lot in an index fund and forget about it.

Any recommendations would be greatly appreciated.

If you get out of sterling and want to be buying a property in the uk later then you're exposing yourself to massive currency risk. There's no guarantee the pound will get weaker - we might even remain and see the pound shoot back up.

Yes that is a good point. I think the market could be assuming a deal of some sort happening. I think a no deal Brexit might not be fully priced in. This is tricky since we are speculating.

I think the issue of having the whole amount in GBP leaves open risk in case of a no deal or even the opposition being elected (which I think is a very small probability). GBP will probably fluctuate with the probability of Mays deal passing through Parliament.

What do you think about hedging? For example, putting 30% in USD or a mix of USD and stocks, with the rest in GBP?

I just wanted to make the point about currency risk. Generally a very risky idea to have your money in a different currency to the one you're commited to spend it in. Of course the risk goes both ways and you may make a big gain if it goes your way.

Personally I think a no deal is extremely unlikely but that's just my view and I've no idea how the currency markets have priced the various scenarios.

Again just my view but I was bullish on property before brexit (based on price vs rental value) and I sure wouldn't touch it now unless maybe I was very young and didn't care too much financially if prices dropped a lot.

If you have other money in index funds, and a million liquid, it doesn't sound like you have some steep utility curve where it would be worth the trouble to protect against currency risk. If you were going to lose your house or something should the pound drop 15%, then I could see it being worth the hassle and fees to mitigate risk by buying USD. But it sounds like you don't have a pressing reason to be risk averse, and if that's the case, you should see that making a million-pound forex bet is probably a bad idea (you have no edge in that trade).

What exactly is the risk here? Can you give some bad scenarios that could unfold in the future?

It is mainly currency risk. If a no deal happens for example, the value of sterling could drop a lot. It could drop much bigger than house prices. Foreigners could also buy up property cheaper.

However, I am starting to think that my best bet is to probably purchase a property asap. It is to live in so I have a long time horizon.

Buy a cheaper property than you think you need if you are worried.

OP is right to be concerned about the possible effects of Brexit on his cash and index funds and is sensibly intending to stick his cash into property if it tanks post-Brexit.

He should also be concerned about losing some or all of it in another banking collapse as only the first £80k per lender is guaranteed.

The current labour government getting elected should be much more of a worry if you are wealthy:

- https://en.wikipedia.org/wiki/Histor...United_Kingdom

- https://www.telegraph.co.uk/news/ukn...king-pips.html

Juk

juk I remember your poker variance posts as being very good, but this is plain wrong.

The 1970s tax you're citing was on income not savings, which is OP's concern.

Citing income tax regimes from 40+ years ago comes across as tabloid scare-mongering when you should be citing Labour's stated tax plan: taxing those on £80,000 or more at 45%, and those on £125,000 at 50%, thereby raising taxes only for the top 5% of earners.

His original question was about investing it in index funds. He also alluded that he had even more already invested in index funds...

It was called "unearned income" supplement and the only reason I know of it; is because my grandmother ended up paying ~100% during most of that period (due to owning and renting out a large number of houses she'd built). For a time she even ended up paying 105%!!!

The saddest thing about it was that she'd been a lifelong Labour supporter (and later a Labour councillor); that was before the "militant" labour of the 1960's and 1970's ruined the country (her husband had also been a lifelong Labour supporter and was also a prominent trade-unionist in the 20's and 30's...).

I won't post her name here, but I'll PM you a recent article about her life to show I do know what I'm talking about.

Juk

What an interesting woman, years ahead of her time.

There's no suggestion I've seen that Labour will impose a surcharge tax on investment income. The talk of windfall taxes has been aimed at multinational internet behemoths like Amazon and Google who pay very little corporation tax in the UK.

I'm in almost the same situation and here is what I did (I'm in the USA though):

20% precious metals, platinum is under valued right now
50% S&P index fund
30% Franklin Utility fund

I think over 95%+ of your money should be invested into something of some form. 1 million is quite a lot of money to just be floating around, unless of course you have a lot more than 1 million in terms of networth. I think your best bet is to buy the property you want and put the rest in index funds as you sort of already said.

I think the precious metals is a good shout for some percentage of your cash. Gold still looking fairly reasonablly priced at the moment.