What to make of “Brexit”
SUMMARY:
The United Kingdom’s vote last week to leave the European Union has global significance, but it may take years to know the full impact. The U.K. is likely to feel long-term affects. In the short term, uncertainty about the degree of global ripple-effect makes investment markets nervous.
Given tepid global economic growth, the medium-term stock market outlook that was already guarded before Brexit is a bit more so now, however not necessarily bearish.
Such circumstances make discipline and careful planning (vs. emotional decisions) even more important for people and organizations with long-term horizons, in the context of the following:
- Straying from your long-term plan and strategic stock/bond mix (i.e. consistent with your planning) due to short-term concerns can harm goal achievement.
- While cash and bonds may have short-term appeal, cash consistently loses against inflation, potential bond rate risk is high and getting higher, and missing market recoveries is where real damage is done.
- Global/broad diversification is important. Despite the more recent dominance of the U.S. stock market vs. international equity markets, top performance has historically alternated between those major stock groupings, and a U.S.-centric stock portfolio leaves potentially valuable opportunities on the table and may have higher risk than a global portfolio.
- Market dips create rebalancing opportunities, and active investment managers within portfolios evaluate holdings for adjustments, including low-price buying opportunities when securities are over-sold.
BACKGROUND & DETAILS: