Who Is Profiting From Brexit So Far – A Look At The UK House Prices, Gold and Stock Market Returns

If someone told you that due to the Brexit referendum decision, it would be wise to move your money to the Polish stock market, you would probably laugh. You would die laughing if I advised you to invest in “always expensive” American companies.

On the other hand, you would confirm that properties are always a good investment.

Read this post to find out what happened with different asset classes in the three years since the UK’s EU referendum.

Opportunity cost

Have you ever heard about an opportunity cost? Investors have to decide where to invest their money to receive the highest or safest return. If you choose one alternative over another, then the cost of choosing that alternative becomes your opportunity cost. The difference

If a person has $10,000 to invest and must choose between Stock A and Stock B, the opportunity cost is the difference in their returns. If that person invested $10,000 in Stock A and received a 15% return while Stock B makes a 20% return, the opportunity cost is 5%.

It means that through the allocation of your money in one market or one type of asset, you are losing potential gains from another (better) investment.

Brexit

The referendum in the United Kingdom about leaving the European Union which is also known as the Brexit referendum took place on 23 June 2016.

What was the impact of it on the prices of assets? And what was the best way to allocate money in the last three years? Was avoidance of the stock market the right approach?

Inflation and currencies

The essential aspects to take into account are movements of asset prices as well as the exchange rate of the British Pound. 

According to data provided by Office for National Statistics having cash or deposits in British Pounds was not a great idea. The purchasing power of the Pound dropped by 8% because of inflation.

You can check it here: www.officialdata.org/uk/inflation

It means that the average prices increased by 8%. Every financial asset which did not increase at least by 8% in these three years, lost value.

Let’s see what happened to the British Pound exchange rate in the three years after the referendum:

• US dollar gained 16.19% against British Pound

• Polish Zloty gained 19.81% against British Pound

• Euro gained 16.59% against British Pound

 

Flats? Buy/rent a house! You can extend a house, convert a garage into an extra room, have a garden etc. Yes, but…

Why do I prefer flats? That is only my preference as I know that there is always something which can be corrected or improved for better living in the house. I am not a DIY guy, so flats are a much better choice for me.

My minimalistic approach for owning things makes me a fan of the sharing economy model. I would rather use Uber or travel by train than drive a car by myself. While being a passenger, I can use my time more productively when travelling .

Also, I do not need a garden. Currently, I rent a flat very close to a beautiful park which is just 2 minutes walk away. And of course, I can spend my time there without taking care of trees and flowers. Besides, I pay taxes for the park maintenance, so why not make use of it.

And there is the opportunity cost. What I mean by that is my decision to use time in other way instead of gardening or doing endless repairs in a big house. I prefer to spend my time on things which are my interests or can give the most value to others like this blog.

The property market in the UK – a look at flats/apartments in London and Swindon

I have been monitoring two property markets closely:

• The first one is Swindon – a large town in South West England, where I live.

• The second is London, the capital of the United Kingdom. 

So what happened from the moment of the decision of the United Kingdom to leave the European Union?

Well, not a lot if you look at it from the perspective of the volatility of prices.

Below there is an extract of information from the website www.home.co.uk.

https://www.home.co.uk/guides/house_prices_report

The analysis is based on average and median transactions only. It’s not exactly comparable but let’s assume that the data is good enough. 

It shows that the market was flat in the three years after the referendum. Flats in Swindon lost 0 to 2%, whereas flats in London gained around 1 – 4%.

There are other articles which confirm the slowdown or reverse in the trend of apartments prices. Just google it if you have doubts about the data from www.home.co.uk website.

The UK stock market

What about investing money in the stock market?

From 22 June 2016 to 21 June 2019 the index of the London Stock Exchange FTSE100 increased 18.31%. That is not too bad. But combining with the British Pound’s depreciation, the result is only around +2% in US dollars.

Let’s see what we could gain from gold investments and investing abroad in stock markets. 

Gold

Gold is considered a safe haven in difficult times. The gold price increased by 27.64%, which is better than flats in the UK or gains on the UK stock market.

Foreign stock markets

In the same three year period the index of the Polish stock market WIG increased by 28.65%. Additionally, the Polish Zloty strengthened against the Pound Sterling by 19.81%. The resulting increase from investing in the Polish stock market was 54.14%.

What about the biggest stock market?

The index of the US stock market S&P 500 increased by 41.48%. The US dollar gained against the UK Pound 16.19%. The resulting increase from investing in the US stock market was 64.38%.

SUMMARY – Investing money abroad in the three years after the referendum was the right choice. If you did it, you would have far more money available to buy a much bigger flat.

Because of the opportunity cost, we should always compare investment return with alternative asset classes.

Change in price of apartments, gold and stock market indices:

• Flats in Swindon lost between 0 and 2%

• Flats in London gained 1 – 4%

• Investing in the UK stock market, the FTSE100 index gave a return of +18.31%

• The price of gold rose by +27.64%

• Investing in the Polish stock market, the WIG index gave a return of +54.14%

• Investing in the US stock market, the S&P 500 index gave a return of +66.17%

Remember that because of inflation, if the assets did not exceed 8% in three years after the referendum, the money lost its purchasing power.

In the three years after the Brexit referendum, the best returns among the analysed asset classes were from stock markets outside the UK.

Problems? Rather opportunities

It is wise to learn to see opportunities where others see problems. In the case of Brexit, if you invested abroad, you would now be better off.

My investments were divided between the Polish, US and Russian stock markets. As you have just read, it was a much better idea than investing in the UK. Also, because I prefer to choose the best companies from respective stock markets for my investment portfolio, I beat the stock market indices.

Every time you invest in something, the money is not working on a potential other investment. Have that in mind while investing.

That is why it is essential to look at different asset classes, as well as foreign markets. There’s Always a Bull Market Somewhere; we just have to look for it.

 

Please note I am not a regulated financial advisor, and so any help will be non-advisory. If you are unsure of the suitability of any investment, you should seek professional financial advice.