Unless you have been binging on the new season of Orange is the New Black over the past few days, then you have probably heard the term “Brexit”.
Since you are smart and probably have money in the markets, I want to share my thoughts on this issue and how you can navigate through any financial problem.
I have some experience in this area because I have studied the markets . I also worked with clients in the early part of 2000 and 2008 as a financial advisor when we saw two major market downturns.
It can be scary when we experience “financial disasters”. Usually, it is scary because you are uncertain and uncertainty in anything leads to fear.
Unfortunately, we live in an era where we are bombarded by news and the internet about these disasters because bad news sells. These fears can be magnified and cause us to do insane things.
You may be susceptible to irrational behaviors because money is personal. We hate to lose money more than we like to make it.
That is why so many people pull their money out of the markets when they are low. That is the worst thing anyone can do during market fluctuations.
Today I want to share my thoughts on Brexit to give you a different perspective and knowledge to help you navigate through this or any financial disaster.
Q1) What Are Your Thoughts on Brexit
I have studied the Great Depression, insane inflation in the late 70s & early 80s, Black Monday, the Savings and Loan crisis, the internet bubble, and 2008 when the banks screwed everyone.
In each situation, “experts” said the economy would never recover.
The one thing all of these “disasters” had in common is they always rebounded.
Look at this chart below I created detailing what would have happened to a $50,000 investment in the S&P 500 if it was invested during market highs, right before market crashes.
As you can see, the markets have always rebounded. This example just includes 100% US stocks. A well-diversified portfolio would have looked much better.
If you have a long-term investment horizon with a diversified portfolio, you’ll be fine.
Q2) What is Brexit?
In a nutshell, Great Britain decided not to be part of the European Union. This won’t happen overnight because it will take a few years to complete.
This means they will be independent again. It also means they don’t have to worry about bailing out countries like Greece in the future.
Q3) What is the European Union?
The European Union (the EU) is a political and financial partnership involving 28 countries (soon to be 27). The EU have branches of government, their own currency, and work together. It allows free movement of goods, capital, and services between member states.
To learn more about the EU, this is probably the best article I have read.
Q4) What will happen to Great Britain?
The Queens Guards still won’t be allowed to smile, the Royal Family will survive, and everyone in Great Britain will still drink tea.
Seriously, they will have some work to do over the next few years. They will need to negotiate their withdraw, negotiate new contracts, and much more.
Q5) Why are the markets down?
The markets hate uncertainty (as do most people). The markets aren’t sure what is going to happen in the short term.
There are many questions that need to be answered:
- Will other countries follow Great Britain?
- Will Germany (the only economic powerhouse left in the EU) be powerful enough?
- Will the Euro drastically decline?
- How will America respond?
Once everything plays out, the markets will respond positively. It may three months or it may be three years. Time will tell.
Q6) Is my portfolio safe?
I don’t know. It really depends on your portfolio allocation.
If you are 100% in Great Britain stocks then you should be worried. However, if you are diversified then you should be just fine over the long-term.
Q7) What would you do with your money right now?
Nothing different right now. I will continue to have money automatically deposited in my 401(k) and other investment accounts.
However, if the markets continue to drop then I may look for opportunities.
As Warren Buffet said, “Be fearful when others are greedy and greedy when others are fearful.”
Q8) Can I still fly to Great Britain?
Yes. As long as you have a valid passport you are safe to go to Great Britain.
Brexit is great for news because they can make a lot of money creating “what if” and doomsday scenarios.
You are smarter than that and you won’t get sucked into being scared. Twenty years from now, you won’t even remember Brexit and you’ll be happy you stuck with your diversified portfolio for the long-term.