By now, I’m sure you’ve heard that the UK has voted to exit the European Union. The stock market reacted negatively. What should you do?
The stock market hates uncertainty. When issues are unresolved or things don’t go as expected, the stock market gets skittish and prices decline. The Brexit vote to leave was unexpected. As such, the stock market was down. Broad US indices were down 3 and 4 percent. UK-based banks were down more the 20 percent. The British pound was down 9 percent against the US dollar on Friday. This may not be the end. The markets may remain unsettled for some time. In November, the US presidential election will likely have an effect on the markets as well. In the short term, the stock market will ebb and flow. So what should you do now?
More than likely, your money is invested in index funds. Your investments probably took a big hit on Friday. So what should you do now? The simple answer is that for most of us: nothing. You should probably stay the course. You are investing with long term goals. In the long run, the stock market will likely head higher. There may be bumps along the way, but ultimately, the economy and the stock market move higher. In 2000, the market decline due to the dot com bubble. In 2008, the financial markets collapsed and the stock market declined by 37 percent. The market does not steadily climb. There are fits and starts. Eventually, the market recovers from the declines and continue to climb. If you are investing your money with one of the major brokerage houses you probably received email echoing this sentiment. My suggestion is that you try not to watch your investments too closely.
Here are links to a few articles about Brexit which I found interesting:
- Why Britain Left
- Brexit: Can they change their minds? The vote by the populous isn’t binding. I suspect Parliament — even though it was predominantly in favor of REMAIN — will accept the popular vote and begin the separation process. Three million people have signed an online petition asking for a new referendum, I suspect that the UK will still move forward and break off from the EU. But this isn’t something that we should spend too much energy on. Continue investing. Years from now, if history serves, you will likely see the stock market much higher than today.
- and for giggles: British Lose the Right to Claim that Americans are Dumber
Over a 60 year period, even with periodic significant declines, you can see that the long term direction is up. So what should you do now? Nothing. Well, perhaps you may want to book a trip to the UK. With the British Pound down 9%, your vacation to England and Scotland just got cheaper.