Weak pound and investing in foreign tracker funds

TS_Smudger

Hi,

I have a fair bit of money invested on P2P platforms, but I'm concerned about the impact Brexit might have on these platforms and I'm looking to better diversify my investments.

I'm quite keen to invest in a stocks and shares ISA, for example a 'hands off' tracker fund like one of vanguard's life stategy funds or their U.S. Equity Index Fund.

My question is this: Given the weak pound and since these funds include foreign equity, is this a bad time to make such an investment? I know that these things are supposed to even out over the course of 10+ years, but it's hard to imagine the £ getting much weaker than it is now.

I'm a serious novice, so I'm sorry if this appears to be a silly question! Thanks in advance.

SonOf

I'm quite keen to invest in a stocks and shares ISA, for example a 'hands off' tracker fund like one of vanguard's life stategy funds or their U.S. Equity Index Fund.

Several issues here.

1 - The US significantly underperformed global markets in the previous economic cycle. Some of this cycle is a bounce from that.
2 - The sector that performs best (or worst) in one cycle is rarely the same in the following cycle. So, putting all your bets on US equity would just be silly investing.
3 - Sterling has already fallen significantly. The predictions for Sterling in a no-deal scenario see it fall further but not by as much as it has already happened. i.e. investing now is investing after much of the even.
4 - If no deal turns out to not be as bad as some predictions or Brexit results in little difference or even better, then Sterling will rise and overseas investments will be hit due to exchange rate.

I have a fair bit of money invested on P2P platforms, but I'm concerned about the impact Brexit might have on these platforms and I'm looking to better diversify my investments.

I would be more worred about the impact of the next recession rather than the exchange rate when it comes to P2P.

george4064

TS_Smudger wrote: »

Hi,

I have a fair bit of money invested on P2P platforms, but I'm concerned about the impact Brexit might have on these platforms and I'm looking to better diversify my investments.

I'm quite keen to invest in a stocks and shares ISA, for example a 'hands off' tracker fund like one of vanguard's life stategy funds or their U.S. Equity Index Fund.

My question is this: Given the weak pound and since these funds include foreign equity, is this a bad time to make such an investment? I know that these things are supposed to even out over the course of 10+ years, but it's hard to imagine the £ getting much weaker than it is now.

I'm a serious novice, so I'm sorry if this appears to be a silly question! Thanks in advance.

In summary, I wouldn't worry about currency fluctuations. Many FTSE 350 companies derive majority (some 100%!) of their revenue from outside the UK, so actually investing in UK companies you are exposed to currency fluctuations.


In the long-term, generally speaking, your portfolio should be unhedged and simply go along with the flow of currency markets. Hence you should just invest as soon as you can afford to do so and not worry about currencies.


If you are really worried, you can pay a slightly higher fee (Annual Management Charge, aka AMC) and purchase a GBP Sterling Hedged share class. However as I said before I wouldn't bother doing this.


Also, there's every chance that the pound will continue to fall in value than go up. Sterling fluctuations can help your performance as much as it can hinder it.

Jackthedog

I would get away from p2p as quickly as you can.

I was invested in p2p for about four years across ten platforms and did very well. However, the writing was on the wall with too many dodgy valuations and rising defaults. Took me a while to disinvest but worth it. Two of the firms I used have gone bust and returns have declined in the rest.

TS_Smudger

Great, thanks to you all for the responses.

I've kept to low risk P2P platforms in terms of the investments, the fear is always that they will go bust as you mentioned (Jackthedog).

As for the tracker fund, I think I'll go for it and not worry about the currency.

Thanks.

LobsterMemory

Perfect!

It's a fact, that I may or not have made up or at least wildly extrapolated, that the the more you try and second-guess currency markets, the more times you'll be wrong