Brexit Votes and Market Outcomes

June 28th, 2016 Posted by Economics, Foreign Investing, Investment Strategy, Investor Behavior, Politics 0 thoughts on “Brexit Votes and Market Outcomes”

Here at OpenCircle, we get it. Following the Brexit referendum and its startling outcome, it’s hard to view current news without feeling your stomach twist over what in the world is going on. Whenever the markets shift dramatically downward, your instincts deliver a sense of unrest ranging from discontent to desperation.

Financial author Larry Swedroe has called this your GMO response: Get me out! The Wall Street Journal personal finance columnist Jason Zweig explains it this way: “Losing money can ignite the same fundamental fears you would feel if you encountered a charging tiger, got caught in a burning forest, or stood on the crumbling edge of a cliff.”

Basically, you can’t help it. These sorts of responses are being generated by basic reflexes in your brain, over which you literally have no control.

What’s Next?

So, first, take a breath. Now another one. Next, remember that there is a fine line between remaining informed about global goings on, versus letting an onslaught of news take over your brainwaves and trick you into rash reactions.

In that context, it doesn’t take long to realize that the Brexit news raises myriad questions, with few swift and comforting answers currently available.

In lieu of fixating on the bounty of in-depth analyses (when in reality the answer to exactly what is coming next is: “Who knows?”) it’s worth remembering that capital markets have been encountering and absorbing startling news for centuries. When viewed close up, the mechanics can be ear-piercingly loud, but they actually have a history of working marvelously well in the long run – at least for those who heed the evidence on how to participate in the upside rewards while managing the inevitable downside risks.

What Should You Be Doing?

If you are one of our clients, you know that we work to accurately position your portfolio to withstand high market risk when it occurs. This means that you have already prepared as best you’re able. And at this time you should be doing very little… which we understand, can be one of the very hardest things to (not) do. So let’s talk about that.

While the outcome of the Brexit referendum is certainly new and different, its impact on the market is old hat. These are the sorts of events we have in mind when we prepare and manage our clients and their portfolios. Using global diversification, effective asset allocation and careful cost management, the goal has been – and remains – the same. Our aim is to expose our clients to the market risks and expected returns they need for building or preserving their wealth, while minimizing over-concentration in any one holding. That way, they are best positioned to avoid bearing the “Ground Zero” worst of it when market crises do occur.

Even so, the unfolding events may cause some people to realize that they aren’t as keen as they thought they were on bearing market risk. Real life is very different from theoretical exercise.

If this is the case, we get that too. Still, we would strongly suggest that this is no time to act on those insights. In fact, it’s likely to be the worst time to do a “GMO.” First, it is likely to incur significant avoidable financial loss. Plus, while it may temporarily feel better to have “done something,” it leaves you with no plan for the future. That can generate more chronic unhappiness than it briefly relieves. Life is too short for that!

If you have a solid plan, but are still having your doubts, consider your current feelings an important and valuable insight about yourself, but please, please sit tight for now. Do give us a call right away, though, and we’ll explore how best to ratchet down your investment risk sensibly and deliberately. And if you are not our client and don’t believe you have a solid plan, give us a call about that, too.

In short, as an advisor, we’re all about safeguarding our clients’ best financial interests. We remain here for them as always. We hope you’ll let us know how you are holding up, and what questions we can answer about the unfolding news. Market analyses aside, we are living in “interesting” times, and would love to chat further with you about them, one on one. We look forward to hearing from you at 203-985-0448.