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Handling uncertainty

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

If a heatwave, damage to a dam in Whaley Bridge or England’s turnaround performance in the Ashes weren’t enough to distract news headlines away from the ongoing Brexit saga this summer, now there’s really no escape.

Handling uncertainty

As the Brexit debate becomes increasingly more charged over the coming weeks, I think we can all agree that the future, at least over the short-term, is looking very uncertain, particularly for Britain’s car industry.

The latest figures from the Society of Motor Manufacturers and Traders (SMMT) reveal the British car industry has suffered its worst period of decline since 2001. UK car production was down more than 10% year on year in July and has now fallen for 14 consecutive months.

What’s telling is this decline is now longer than the 13-month downturn between October 2008 and October 2009 during the global financial crisis.

What’s even more interesting is export orders are primarily responsible for the decline, with overseas shipments falling 20.2% since January, while production for the UK this year to date is down by 13.5%.

Hang on, I thought the current weakness in the pound was meant to help UK exporters? Since the EU referendum three years ago the value of the pound has fallen sharply against other major currencies making our exports cheaper for overseas buyers. You may have expected our motor manufacturers to be cruising in fifth gear since then, buoyed by a rise in exports. So, what would have the export orders been like had the pound been stronger? Even lower?

Brexit aside, the global car industry is facing an unprecedented set of challenges. Diesel sales have slumped following emission scandals and question marks over its polluting effects versus petrol engines. Add the momentous move from internal combustion engines to electric ones into the mix and it’s easy to see why the car industry is struggling worldwide.

Of course, here in the UK, car manufacturers must also contend with the uncertainty of Brexit. If there is no deal, tariffs could increase costs and new border checks could mean production delays as car parts are made in various locations around the world, ready to be assembled in the UK. Equally, with our love for German cars, European car manufacturers also face similar challenges if the UK leaves without a deal.

But the uncertainty goes further than that as upgrading or changing a car is often a discretionary purchase. If the future looks uncertain and jobs are at risk, it’s more likely consumers will postpone buying a new car or upgrading to a newer model. In a downturn, the car industry faces a very different set of challenges to the supermarkets, where a squeezed consumer will at least still shop for the necessities but opt for cheaper brands.

Naturally, the car industry is not the only sector struggling with uncertainty. It’s affecting all industry sectors as they determine the outcome of each potential scenario.

For investors, the weighing up of risk versus reward has also moved up a gear as we enter a period of further uncertainty. Whatever the outcome on 31 October, we know there’ll be winners and losers and some sectors will do better than others. However, knowing who or what they’ll be is the difficult part.

While the current set of circumstances may be new, the way investors can respond to them certainly isn’t. In times like these, investors can seek comfort in age-old investment strategies that have brought them safely through periods of difficulty in the past.

Here are my top three. Number one - make sure your investments are well-diversified across different assets and geographical regions so if one sector or country suffers another one can counteract any damage caused.

Number two - take a long-term view. It’s time in the market that counts not trying to time the market. Attempting to sell before a fall, then buy after it, is really a game of chance where you need to time two investment decisions perfectly.

Number three - invest in stages. Drip-feeding your investment over time means the price you pay for your shares or units is averaged out, avoiding the risk of buying at the top of the market.

Alternatively, you can leave it to the experts and consider a fund such as the Fidelity Select 50 Balanced Fund which invests across a range of different assets and geographies to provide exactly that - a balanced portfolio, whatever the weather.

Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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