‘It's clearly a budget. It's got a lot of numbers in it.’

                                       George W. Bush

 The UK Coalition Government is committed to making over £6 billion of savings within the next year or so. The emergency budget as outlined by the Chancellor George Osbourne on the 22nd June contained a lot of cuts to public spending.  

The issue for the investor in shares is how this might impact on the value of your portfolio? Failure to review the companies within your portfolio in the context of both the emergency budget and the forthcoming Comprehensive Spending Review could be costly. 

This article outlines some key factors to consider in protecting your wealth from the implications of budget cuts from the Chancellor and the Coalition Government. 

1.     Diversify

Whether in times of prosperity or austerity it is always a good idea to have a well diversified portfolio. Now is probably not the time to have most of your investments in shares in companies that are overly reliant on winning public sector contracts, or overly reliant on providing consultancy to the public sector.

As should always be the case, take a rational and considered approach to diversification. Your portfolio should not be overly exposed to any reasonably foreseeable risk.

2.     Go On The Defensive

‘A billion here, a billion there—sooner or later it adds up to real money.’

                               Senator Everett Dirksen

In times of austerity many investors look to defensive shares to protect their wealth.

Defensive shares are those that are considered to be more stable under challenging and volatile economic conditions.

Examples of defensive sectors include food, oil and utilities. Many companies in these sectors also pay good dividends.

3.     Look Beyond National Borders

When the economy of a country is struggling and the future outlook for economic growth is forecast to be below that of other countries, it makes sense to buy some shares in businesses that have exposure to the countries that are forecast to achieve the best growth. Note that I stated ‘some’. 

As stated earlier, a diversified portfolio is good advice, and diversifying into some emerging markets is also good advice as long as it is done cautiously and intelligently and based on sound reasoning.

By taking account of the likely impact of Government budget cuts to your investment portfolio you will hopefully limit your exposure to companies that are overly exposed to fluctuations in public spending patterns, and therefore you will have taken reasonable steps to protect your wealth.

‘I have enough money to last me the rest of my life, unless I buy something.’

                                                 Jackie Mason

Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie