Effects of the Brexit

Jun 2016


The financial world was shocked last week as Great Britain decided to leave the European Union. The vote known as Brexit was close, but a clear majority voted to leave the European Union. Most of the so-called experts had predicted Great Britain would vote to remain; however, they were wrong.

The question on most investor’s mind is how this will affect the markets and most importantly, how it will affect their individual portfolios. If you listen to 20 experts you’ll get 20 different opinions. Some of the so-called experts are predicting a world-wide recession, while others are saying the Brexit will be good for America in the long run. My opinion is quite simple and something the so-called experts never like to admit, I don’t know. If the so-called experts were truly honest they would admit that all they are doing is speculating; because in reality, what Great Britain is doing is unprecedented and there are really no comparable examples which to draw from. Of course, in today’s world of 24-hour news where everything is put into crisis mode, admitting the experts truly don’t know does not make for good TV. That is why I always caution investors from making moves on their portfolio solely based upon what they hear and see in the media.

I am amazed that the same people who predicted the Brexit would go the other way are now the same experts giving opinions as to what will happen because of the vote. I am not saying these are not smart people; however, what I’m saying is that many of the so-called experts are not in the media because they know more or have any unique insights but rather, because they look and sound good on TV. I am not sure that’s who you want to take advice from when it comes to managing your portfolio.

I don’t know what is going to happen and neither does anyone else. One thing I do know is that markets do not like uncertainty and Great Britain’s vote to exit the European Union creates uncertainty. Therefore, the volatility that we experienced immediately after the vote was not unexpected. It also would not be surprising that as the process of Great Britain’s exit proceeds, there will be more volatility. However, just because there will be volatility, doesn’t mean investors should panic or rush out and liquidate their portfolio. As I’ve always said, fear is one of those emotions that ruin investors’ portfolios. You cannot let fear dictate how you invest your money.

In the last number of years we have seen other unprecedented events. For example, it was only a few years ago the United States lost its AAA credit rating. At that time the so-called experts predicted doom and gloom for the U.S. economy. After the initial volatility, markets returned to normal over a relatively short period of time. With Brexit we don’t know how the markets are going to react and we don’t know if in two to three months from now everything will be back to normal. As I’ve always told investors, you should not invest based upon what is happening in the market but rather, you should invest based upon your goals and objectives. Investors who try to invest based upon the market are constantly buying and selling and in the long run are going nowhere. Being an investor is not easy and it’s difficult to see our portfolios go in the wrong direction. However, to be a successful investor you must have discipline; particularly, in times such as now. My advice for investors is to take a wait-and-see attitude and ultimately make decisions based upon what you are trying to achieve in your portfolio. If you focus on your individual goals and objectives and not on the market, I believe in the long run you will be a successful investor.

Good luck!

Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.