As I write this (10:35pm Central), it appears, as I personally suspected, that the United Kingdom will vote to sever its ties with the European Union. All the polls and “talking heads” were, as has become laughably typical, wrong. The people of the UK appear, at least at this point, to be making a decision to reclaim their independence from a federal union that did not understand the complex needs, and certainly did not respect the sovereignty, of the individual nations of which it is comprised.
Normally a political event from Europe would not affect the US stock market to the degree this one may, but in our increasingly interconnected and often incestuous world economy, the fear of “contagions” make the global banks and institutional investors nervous. After being totally wrong as recently as a few hours ago, now you will hear claims from these same “experts” that the UK’s decision will devastate England’s economy.
I strongly disagree with that assessment. The UK, and other disaffected nations such as France have much stronger economies than the EU as a whole, and are in fact being dragged down by various other nations (such as Greece, Spain, and Italy). I DO believe, however, that this is likely the beginning of the end of the European Union as we know it today, as other producing nations have already pledged to hold their own referendums on whether to leave or stay part of the EU (to which I personally say, good riddance – it’s dying on the vine economically and rapidly losing the consent of its governed).
So how does this affect your investments? In the short term, expect quite a bit of volatility. Markets will likely open Friday morning (likely when you read this), down quite a bit. This won’t stay that way. I expect even a rough month or two as markets get used to the idea of the kinds of changes this vote makes. But like all moments of market panic, it will pass, and we will most likely look back at this time as an excellent BUYING opportunity. The next few weeks may present amazing opportunities to invest, especially in British companies.
In the first few days, investors will likely move to safety, which means, stocks will drop in value and bonds will rise in value. Likely the US dollar and precious metals will rise, as these are seen as the safest havens when currencies lose value.
Remember, though that short-term, panic-motivated investments do not hold their value for long. Like a rubber band that gets stretched and let go, all investments will eventually return to their normal, typical returns. We call this “reverting to the mean”.
Please, do your best to tune out the arrogant and headline-driving (and constantly incorrect) doomsayers on TV. They’ve been wrong about nearly everything this past year. And most have vested interests in keeping sovereign nations irrevocably tied to one another.
And finally, if you do get nervous, remember to focus on your long-term goals. This too shall pass, but your retirement, and college costs for your kids and grandkids, and if you’re already retired, your income needs, remain. THOSE are the reasons you invest, and those are the reasons I do my job each day.
As your financial advisor, I cannot predict or control the future. But I can (and do) help guide your steps and help you make the RIGHT decisions with your money, even if in the short term, it feels scary. There are times you need to stand firm. This is one of them.
I welcome your calls and emails if this situation (or any other) concerns you. Feel free to call me at the office at 888-852-0702.
Have a good weekend, and “let not your heart be troubled”.
All my best,
CEO, nVest Advisors, LLC