Brexit – What Is It and What Should I Do?
All the news about Brexit reminds me of how the media spins stories, how bad investor behavior can cause investors to hurt themselves, and how wise investors should be grateful for volatility. It reminds me of the uncertainty in 1987, when financial markets fell “due to computers”. Brexit, Ebola, Sarin, you name the scare – volatility can create opportunity for wise investors.
That brings us to the latest panic: Brexit. The real question is what does it mean, how will it impact me, and what should I do?
To me, Brexit exemplifies freedom. At its core, Brexit is an illustration that democracy works. The voters have spoken. Some 70% of the citizens voted, and the majority chose to leave the European Union, a governing body that was designed to create a “vibrant European economy”. They have not done very well as the European economy. In the past 40 years the 28 countries in the EU were some 36% of the global economy. Today they represent 17% of the global economy, and falling. Clearly the EU is not doing a very good job creating jobs nor providing an environment for a vibrant economy. Does this dissent among citizens sound familiar?
Also interesting how the media polls got this so wrong. Up until the day of the election, they were anticipating English voters would relent, bowing down to the political establishment, and “staying with what is known” – Britain remaining in the EU. What happened? The polls obviously got it wrong. The Prime Minister (the effective President) got it wrong. Democracy worked – and now Britain is free. Does this sound similar to what is happening in American politics?
So Britain leaves the EU – what does this mean? I believe the bottom line is investors should ignore the scare stories about Brexit. The EU runs consistent trade deficits with Britain, meaning they sell more goods and services to Britain than they buy. Britain is a significant consumer. Leaving the EU does not mean they will stop consuming, and I doubt the EU will allow one of the bigger export markets to become distant. I think countries in the EU will chase Britain, begging them to sign trade agreements.
How will it impact investors? It is also great economic news as it frees the US and Britain to sign trade agreements, freeing trade between our two countries. It is estimated that being part of the EU, the trading costs add an additional 5% to the price of goods and services in what amounts to a “tax”. What do countries get for this tax? Their name on a website? Many other countries are beginning to ask that question…
So what should investors do? Consider any volatility to be a potential opportunity to add to a portfolio, especially with investments aligned with their goals. We believe great companies that make a nice profit, share that profit with owner shareholders in the form of a dividend, and grow that dividend make sense, and when investments “go on sale” like this it is an opportunity.
If you would like to have a conversation about Brexit, your portfolio, and your future, please feel free to contact us. Likewise, if you know of someone who is caught up in the spin of Brexit story and needs someone to “talk them off the ledge”, forward this article to them. We want to help people from behavior that potentially might harm themselves.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
Investing involves risk including loss of principal. Past performance is no guarantee of future results.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Brexit is Freedom – First Trust 6/6/2016
Investor’s Business Daily – 2/27/2016