What do disruptions mean for your investment strategy?

Posted on August 19th, 2019 | Categories - Investments, News

A whole host of things can affect how successfully a business operates. A lot of these will be internal influences, but many aren’t. From changing regulation to evolving consumer habits, there are multiple disruptions that can make a business more or less attractive to invest in.

Disruption is often used as something of a buzzword to describe how a certain piece of technology can affect a particular industry. But, it goes far beyond this. Technology is influencing every sector, and its often small businesses with innovative products that are having the biggest impact. The ability to quickly embrace change means that, on occasions, smaller businesses have the power to take on much larger companies.

In the context of the global economy, Schroders have identified three key disruptions:

  • Technological innovations, such as mobile phones and artificial intelligence
  • Change consumer habits, like switching to online shopping for convenience
  • New regulations or government policy, such as increased regulation around the sale of tobacco

So, what does this have to new with investments? As is usually the case, the circumstances present opportunities and threats.

Shares in a business that have been viewed as stalwarts in the past may no longer offer the same reliability if disruption occurs.

Tobacco companies are a good example. In recent years they’ve faced a shifting consumer attitude as the health implications of smoking have become widely known. They have also experienced restrictions on how they can market tobacco, as well as increasing competition from alternatives such as vaping. How a company responds to such influences will, of course, have an impact on their profitability and the returns shareholders receive.

On the other hand, disruption can offer opportunities too. Investing in start-up companies that disrupt industries could lead to significant gains, but this can be a high-risk strategy.

Responding to disruptions in your investment strategy

With the impact of disruption within business clear, you may be wondering what it means for your investment portfolio. Should you respond to every market influence?

The first thing to note is that responding to every disruption would be hugely challenging and time-consuming. Adjusting your investment portfolio too much might also alter the level of investment risk you are exposed to. Furthermore, there is no guarantee that any changes will have a positive effect on investment returns.

However, that doesn’t mean you shouldn’t be mindful of disruptions and the potential influence on your finances.

Working with a financial adviser

Working with a professional can help you understand how disruptions may impact your portfolio in the short and long-term.

It might also be difficult to know which reports of disruption to act on, as there can be conflicting, sensationalist information in the media. This is where a financial adviser can help provide clarity, as well as demonstrating how bias may affect your decisions.

Diversify your investments

Building a diversified portfolio is crucial for spreading risk. By investing in a range of companies, industries and geographical locations, you can reduce the negative impact of disruptions in any one sector. The goal of diversifying is to provide relative stability when it comes to investment growth.

Ensure regular reviews

Maintaining regular financial reviews should be considered crucial for your wider financial goals. It’s a step that can also provide the perfect opportunity to review your investment portfolio in light of changes that may have occurred.

For instance, incoming regulation may mean you decide to move a portion of your investments away from a particular industry. However, it’s critical that you take a balanced approach here and don’t allow bias to guide decisions. This is an area that a financial adviser can provide support with.

Focus on the long term

When you first started investing, you probably did so with a long-term goal in mind. Perhaps you’re saving for retirement or to provide a nest egg for children. This should still be the centre of your financial decisions. It’s easy for short-term volatility and noise to have an impact when you’re considering where adjustments may need to be made in your investment portfolio. But, it’s far more important that you look at the overall picture and long-term returns. Considering disruptions and how a business is responding to these plays an important role in this.

If you’d like to discuss market disruptions with your personal investment portfolio in mind, please contact us. We work with clients to build investment opportunities that not only reflect the wider market but their aspirations too.

Please note: The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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