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Putting Brexit in Perspective After the Predictable Reaction

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Putting Brexit in Perspective After the Predictable Reaction

The news was big last week. The British cast their votes, and the outcome was what many had feared—especially David Cameron who resigned in the wake of the historic Brexit vote. He said he will stay to “steady the ship,” but this ship needs some smart hands on deck to safely escape this storm.

The reaction in the US is much more predictable. Global uncertainty never bodes well for stock prices, and that proved true at the opening bell this morning. And yet, at least as I write this morning, the Dow index or (“the market”), is still down less than 3%. To put that statistic in context, just six months ago the market dipped more than 3% in a single day. Since then, we’ve seen a step-by-step recovery. It hasn’t been a smooth upward climb, but even in its volatility, the market has continued to grow at a slow and steady pace.

There’s intense analysis happening at the moment regarding the implications of Britain leaving the European Union, but in reality, only time will tell. What may be most important to remember from a financial perepective is that time is what matters most. It will take time—months or even years—for the situation to play out economically and politically. As an investor, it’s important not to react to the news. While it’s normal to feel unsettled when the market falls, fear is your biggest risk when it comes to long-term financial success.

Here’s what’s important to know:

  • Keep your seatbelt fastened. The market has given us all a bumpy ride for years now. While we’re nowhere near the Dow’s 15,000 level we saw just last year, the uncertainty overseas is sure to continue to shake things up—just as China did last year, and oil prices did in Q1 of this year. The US election in November may also have an impact on market indices. Just be prepared.
  • Despite what’s happening in the UK and Europe, the US economy is gaining strength. US earnings are solid, employment is up, and there are no indicators of a pending slide. As long as US consumers continue to gain confidence, this should not change.
  • Interest rates are likely to remain low. In the wake of the Brexit, the odds are low that the Fed will opt to raise interest rates anytime soon.
  • Stocks are on sale. Today’s stock prices have no relationship to the underlying value of the companies they represent, and our portfolios are built on strong companies with growth momentum. If you still have time on your side from an investment perspective, now is the time to purchase stocks—not run from them.
  • If you’re taking distributions, sit tight. Retirees are often the most fearful in a downturn. And while fear may spur some to pull out of the market, that’s the best way to ensure an immediate loss. If you’re concerned about the impact of the market on your retirement income, let’s sit down and look at the situation together.

The Brexit vote is today’s big news, but my perspective on the market remains the same as one year ago when I wrote Beyond the headlines, it’s an up market after the market tumbled in reaction to the “Grexit,” Greece’s potential exit from the EU. By looking at the big picture, I hope you can watch the global events play out while remaining confident in your personal financial plan.

Of course, if you’re unable to ignore the headlines, and your confidence begins to wane, let’s schedule a call to talk through your specific situation. As always, I’m here to help.

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