by Joe Smalley, Accredited Investment Fiduciary®
Britain voted yesterday in a referendum to leave the European Union. Not a whole lot of people saw that coming. But we live in the world as it is, not as we would like it to be. So, what now?
Some perspective: even though the US stock market is down more than 500 points right now, it is good to remember that it was up 230 points yesterday in anticipation of the vote going the other way. So since Wednesday, the market is only down a couple hundred points, which is about 1%. Not a terribly big swing.
Investors also have a pretty short-term memory. We had the Greek crisis, the Asian financial crisis, and even the US financial crisis. The market bounced back after every one of those events. Overreacting in the moments after a big geopolitical event is usually not a good idea.
Great Britain is the world’s 5th largest economy. You might think that the vote is going to have a big impact on the world economy. But their Gross Domestic Product is less than 4% of the world’s. The US, in comparison is 25%.
The key point to this situation, though, is that the vote was the beginning of the process, not the end. There is a long period of time to see how Britain negotiates with Europe to figure out what to do next. It may not be as bad as people think it will be.
Markets are assuming that the European Union will disband. While that may happen, it is unlikely. And if it does, another coalition, agreement, trade deal, or alliance will come about to take it’s place. As Mohamed El-Erian calls it, a Plan B needs to be contemplated.
He goes on to say, however, that over the long-term, with uncertainty comes opportunity.
So what now? If you have some cash that you are ready to deploy, let’s talk about how we can add to your portfolio over the coming days, weeks, and months. If the volatility is too much for you, let’s discuss making your portfolio more conservative.
This is a good time to think about your different types of money: money for the short-term, money for the medium-term, and money for the long-term. If you need money for the short-term, it should not be invested in things that have a lot of fluctuation.
I’m a horrible golfer, but a golf analogy is appropriate. Don’t use a putter when you’re teeing off. Likewise, don’t use a driver to get out of the sand trap. Different clubs are for different shots. The same is true with investments. Use short-term investments for short-term needs, and long-term investments for long-term needs.
As always, if you have questions or want to go over your situation, please contact us.
Hope to see you on the golf course soon!
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