How Will Brexit Affect Your Financial Plans?
Since the UK voted to leave the European Union—a surprising move that has had markets reeling—many US investors are wondering what the fallout will mean for their investments and financial plans.
Here at GW & Wade, we’re watching the situation closely. While acknowledging that so much has yet to be sorted out, we want to share the frequently-asked questions which are circulating, along with some brief insights on each.
How will the Brexit referendum affect U.S. markets?
It’s impossible to predict how far-reaching Brexit shock waves will be. In the immediate wake of the vote, the S&P lost nearly 2.5% and Germany’s DAX index lost more than 6.8 percent. Then came the beginnings of a rebound: three days post-vote, the S&P was up more than 1.5% and the DAX was up approximately 2%.
Over the 30 years GW & Wade has been in business, we have seen volatility like this before: 1987, 1999, 2008, to name a few instances. In each case, the safe bet was that the markets would rebound, and they did. While we will not make predictions now, we can offer this perspective: although Britain is the world’s fifth largest economy, and although our financial world is increasingly interconnected, only 7 percent of revenues generated by S&P 500 companies come from Europe. It is a relatively small piece of the puzzle.
Is Brexit a harbinger of widespread separatist activity in Europe, i.e. longer-term market volatility?
There’s a lot of uncertainty around the politics of this vote. Some of the facts we don’t know yet include:
- When will the actual separation happen?
- Will other EU members follow suit?
- Might the UK end up adopting an alternative EU membership model, similar to Norway’s?
- Might the decision be delayed or ultimately overturned?
Again, with history as our guide, we believe it does not make sense to start banking on a recession and eliminating all exposure to risk and the equity markets.
Will Brexit affect my retirement portfolio and should I be selling?
Investments in retirement portfolios are typically made with a long time-horizon. And over the long-term, markets have historically recovered from short-term volatility. So it is unlikely that Brexit will affect the long-term performance of retirement portfolios. Furthermore, our Counselors work to ensure that asset allocations reflect the unique time-horizon and risk tolerance of each client. We typically counsel against any major portfolio moves during volatile markets like this.
Let’s take a closer look at that. It’s safe to say that reactionary, knee-jerk moves usually do more harm than good. Remember, the U.K.’s EU membership status hasn’t actually changed yet. It may not change until 2018, at which point trade relationships and other areas of concern will likely be ironed out. When the dust settles, investors may realize this moment of panic was actually a buying opportunity, rather than a time to sell.
More importantly, if you’re working with a GW Wade Counselor, your portfolio should already be built to account for up and down markets, and to accommodate your risk tolerance in the context of events like this one. History teaches us that despite periodic downturns, investors who maintain perspective typically enjoy positive, returns over the long-term.
As we have stated previously when the markets were experiencing great volatility, if your asset allocation made sense the day before market uncertainty, it should make sense in the aftermath.
Should I contact my financial advisor?
We are always happy to speak with our current and prospective clients about their portfolios and about the broader economic environment. It bears mentioning that, despite all the news and attention to Brexit, we have in fact received only a handful of calls. Perhaps this is because market volatility has become the “new normal.”
The information provided above is general in nature and is not intended to represent specific investment or professional advice. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship. Diversification and asset allocation do not ensure a profit or guarantee against loss.
Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:
Laurie W. Gerber, Client Development
GW & Wade, LLC