The UK voted to leave the European Union (EU). This came as quite a surprise to much of the world as many thought it would never happen. Perhaps it should not be such a great surprise however. If we look back at the formation of the European Union we see that Britain, unlike other nations, kept their own currency instead of converting to the euro. They never seemed to totally buy into the EU. Furthermore, there was an unrest nationally as they felt that they had somehow given up some of their own identity. Now that will all change. The UK has decided to fully regain their own identity and once again become independent.
The question on many people's minds right now is what will be the economic effects worldwide. There will likely be wild swings in the British currency. We may also see considerable short term volatility in the stock markets around the world as well. One could argue that any market volatility caused by this is purely a short-term emotional reaction to the "what if". The fact of the matter is that changes due to this decision will take a long time to be adopted so we will not see much of this change over the short-term. It will be approximately two full years before this transition is completed. In the meantime there will be many negotiations on trade, currency, etc.
If you are an investor, the question you should be asking yourself is “how will this really affect the long-term for me”. Specifically, if you are a retiree or pre-retiree, you should be asking yourself “how will this affect my long-term income”. The key words here are "long-term". The answer to both questions is likely to be not much, if at all. History reveals that geopolitical events typically don’t drive the long term direction of the U.S. stock market. Over just the last few years we saw confidence-shaking news come out of Puerto Rico, Spain, China, and a number of other countries. Markets are generally rattled for a period of time until the public gets over their initial reaction. As investors we need to continue to look at the longer-term instead of focusing on very short-term events. Short-term emotions can and will destroy long-term plans. Our advice is to not overreact to the news of the day. If you have a proper "income and growth" plan as opposed to just having a portfolio of financial products for accumulation, your plan already factors in the anticipation of such events. The short-term part of your plan should be mostly unaffected, and the longer-term part puts time on your side to negate the short-term effects of such news. This being the case, our best advice is to just stick to your plan. We remind people that this is why we must always plan first and invest second.
If you have any questions please contact the office at 610-404-3014.