Brexit and Your Investments
On June 23, in a long-anticipated, widely reported referendum in the United Kingdom (UK), voters chose to leave the European Union (EU). This was a momentous decision for the UK, Europe, and beyond, given that the UK is a global financial center and the world's fifth-largest economy. And the EU, a union of 28 states, includes four of the world's seven largest developed economies.
The vote will have a significant impact on the UK and European economies, with global implications, but the effects may be years in the making. The most immediate ramifications will be continued uncertainty and political change in the UK.
What does it mean for an investor like you?
Although it is certainly worthwhile to keep abreast of global events such as the Brexit referendum, investors should use caution in making tactical or short-term changes to their portfolios. Instead, it is better to remember four core investment principles:
- Determine clear, appropriate goals.
- Develop an appropriate asset allocation using broadly diversified funds.
- Minimize cost.
- Maintain perspective.
Investing globally enhances diversification, which can help reduce portfolio risk. Diversifying between U.S. and non-U.S. stocks gives you a chance to participate in whatever region is outperforming at a given time.
Remember that if there were no risk, potential investment rewards would be small, or nonexistent. Markets can change rapidly in response to news, accounting for much of the difficulty in timing trades. The media naturally have a short-term focus, whereas investors should remain focused on their long-term goals.
In the end, your own actions will have a lot more impact on investments meeting your long-term goals than what happens in London, Brussels, or Washington.
Patti Kane, Kane Financial Planning, LLC