I’m sure most of you have heard that last Thursday, July 23rd, the United Kingdom voted to separate from the European Union. I’m also sure you noticed the market slide of over 3% the following day, Friday July 24th. The effects of this break-up will be months in the making, and the powers-that- be state the emancipation will take place over the next two years.
So, what does all of this mean to us state-side? And what should we do about it?
First things first, the break up is not yet fully defined. Will it be a complete split or just a partial split? Either way, there will be consequences touching many facets of the governments of European countries….plus some ancillary affects impacting non-European countries, which would be us: The good ole USA!
This doesn’t necessarily point to another recession or huge market downturn. Remember the same pillars that were holding up the US markets on Wednesday were still in place on Thursday and Friday. Sure, this will impact the markets, but I feel the impact on international markets will be greater.
The market’s reaction on Friday was just that…a reaction. Obviously, there are some connections that could/will affect the stock market negatively: imports/exports, exchange rates, banking…etc. But, the bulk of the pain should be focused on Europe.
With this being said, we must focus and remained disciplined investors. The best historical perspective to validate a disciplined (hold on and not trade out of positions) strategy is the downturn of 2008-2009. That was a painful time, but looking back we came out just fine with our portfolios weathering the storm and looking strong today. We are long-term investors and not short term traders, and by taking this approach we look back to 2008-09 as a bump in the road. We can handle the bumps along the way because the portfolios are designed to do so.
For those of you who are holding cash in your retirement accounts (such as recent IRA contributions), you have the opportunity to buy equites “on sale.” This is also a great time for us to continue to make contributions to our 401ks and 403bs. Buying during dips will help to smooth out the ride along the way. We aren’t trying to time the market, we are simply taking advantage of putting some cash to work during this downturn.
If we focus on the areas that we can control: spending, savings, and controlling taxes, we will be just fine…matter of fact, we will be better than fine. My final suggestion to you is to limit the amount of news you consume during this period. The talking heads will be pontificating over this for months. Avoiding any news story that starts with a flashing red sign and includes “BREXIT” will ultimately help you sleep better at night. As a fee-only financial advisor, my job is to look at the big picture, so let’s stick to our plan, remain focused and disciplined, and watch as everyone else over-reacts!