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How Brexit May Impact Your Investments

You are likely aware of the recent news of the United Kingdom’s vote to leave the European Union.  Below is a quick summary of what has occurred:

  • On June 23rd 2016, the United Kingdom voted yes on a referendum to leave the European Union.
  • The process of actually leaving the European Union could take 2-3 years. In order to leave officially, they will need to trigger Article 50 to start the process.
  • Prime Minister David Cameron has resigned and will find a successor in October, 2016. The plan is for the successor to trigger Article 50 and begin the process of leaving the European Union.

Investors and Global Credit Ratings Firms React Quickly to Brexit

  • The United Kingdom has lost its AAA credit rating (now AA).
  • Global investment markets were hit hard initially and have been quite volatile since the referendum.
  • The British Pound has been devalued, hitting its lowest level since the 1980s.

BREXIT Effect on financial planning, EU effect on retirement, BREXIT retirementThis “leave” vote passed by 52% to 48%, and was quite a surprise to many.  In fact, the European and U.S. markets had all gone up in the days leading to the vote in anticipation of a “stay” decision.  No one really knows the longer term impact of this decision on the world markets, but Standard & Poor’s notes that “This outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K.”  As we all know, surprises and uncertainty cause market volatility.  Many are predicting a slow down in global economies and perhaps a recession in the UK and elsewhere.

We cannot always predict market volatility, but we can plan for it.

Wise investors understand that ups and downs are to be expected.  The immediate, large, two-day drop in financial markets, followed by three strong recovery days reinforces the concept that a long-term, diversified investor should not panic and sell.  Nor is this a time to try to take advantage of a perceived buying opportunity.  Do not overact to stock market volatility.  Rather, focus on the opportunity and risks by regularly rebalancing your portfolio based on your long-term strategic asset allocation plan.

AAFCPAs Wealth management suggests that you meet with your wealth advisor to discuss your investment strategy to ensure that you are on course to reach your short and long-term financial goals, while controlling risks, such as those at hand as a result of Brexit.  We recommend that you discuss the following:

  • Revisit your overall financial plan and investment strategy. Make sure they are in line to meet your short and long term goals.
  • Assess your overall risk tolerance in your investment portfolio, and make adjustments when necessary. As a reminder, portfolio losses or gains are not losses or gains until realized. Markets always go up and down over time.  If you anticipate taking regular or one-time withdrawals from your investments, make sure you have adequate stable-value funds in your portfolio to temporarily withdraw from if the market has gone down.  This gives the markets time to recover so you don’t have to “realize” losses.

If you have any questions about your investment strategy, please contact Joel Aronson, CPA, PFS, at 774.512.4114, jaronson@nullwealth.aafcpa.com.  Our mission is to provide valuable peace of mind to those who have the awesome responsibility to manage wealth.