Brexit, what happens now?

UK citizens’ decision to exit the European Union really caught the world off guard. Last Thursday, traders thought the vote would fail and that sent values higher. On Friday, we got new information and stocks fell. Partly as a correction to what people had assumed and partly over fear as to what the future holds. Since the announcement, global stock markets have been down. And as often happens when markets go down on a Friday, traders return on Monday in “selling mode”. But we believe this will prove to be a short-term reaction to an unexpected event rather than a protracted downturn.

It’s important to realize that while this was unexpected, it’s not a war and it’s not a default. This decision does not necessarily mean that good companies won’t still be selling things people need. And there are a lot of smart people running these companies who will figure out how to be profitable in any circumstance. We are not expecting the global economy to come to a screeching halt. Therefore, we still think there are good investment opportunities and hopefully that will be reflected in peoples’ investment accounts.

Both the United Kingdom and the rest of the European Union have a vested interest in ensuring an orderly transition. We don’t believe anyone wants to rock the boat any more than is necessary. This exit will take up to two years - during which the UK will remain part of the EU - and will largely consist of talks surrounding trade and immigration. It will not, however, necessitate a change of currency as the UK will continue to use the Pound Sterling as it had never adopted the Euro.

So how will this affect us here in the US? It’s important to know that the US economy is quite self-contained in that we consume much of what we produce here. In fact, we often import more than we export. And to the extent that we import from Great Britain, that just got a little cheaper for us. The question on what that may or may not do to the US Economy really has to do with how this change MIGHT affect US exports. So far, it’s possible that the UK will experience a recession. But we don’t really expect that for the US. The Federal Reserve has already signaled that is going to do what it can to make sure things go smoothly and US Banks are actually quite healthy right now.

So what does an investor do? First of all, stay calm. Resist the temptation to make big changes based on short-term information. For an investor with a time horizon greater than 5 years – even those who are already retired -  it’s possible that the portfolio you had before the Brexit is not too dissimilar from what you’d want after. Second, if you are withdrawing funds pay attention to your withdrawal rate, the percentage of your portfolio are you withdrawing every year. If it’s more than 6%, you may want to dig a little deeper. And finally, seek council. We are proactively reaching out to our clients but are always available should you like to chat.

Mike Macco, Financial Advisor

"Any opinions are those of Mike Macco and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected."