Market reaction to “Brexit”
Our periodic communication that reminds you to ask, “Should I react to those headlines?”
Market reaction to “Brexit”
“If you can keep your head when all about you
Are losing theirs and blaming it on you” ~Rudyard Kipling
Dear Friends:
We wanted to share a brief memo regarding the market’s reaction to the news of “Brexit”. For definition’s sake, Brexit is a term coined to describe the people of Britain voting to withdraw from the European Union.
Let’s take a step backwards before moving forward. The vote was known to the markets and to the press for many months now. The vote was not a shock. Approximately two days before the vote polls showed that the people of Britain were likely to vote to remain part of the European Union. The press ran with the new term “Bremain”. For whatever reason, the markets rallied on the belief that the people of Britain would remain part of the E.U. Late Thursday night in the United States, the world was learning that the people of Britain actually voted in favor of leaving the E.U. This brought uncertainty to the markets and a reversal of the prior two days of news from the polling. The markets in general reacted with lower prices. This to us is another example of how difficult, and worthless trying to predict market price movements based on news items, is for the average investor. Oh but it does bring forth plenty of excitement!!
How does this effect the average investor’s portfolio? Well for the past months prices have been falling and then rebounding based on this vote as well as a host of other news items. In the short term, most portfolio’s rallied on the “Bremain” news and then fell on the “Brexit” of Friday morning the 23rd of June 2016. We do not know how this will affect portfolios going forward, and doubt that any other person sharing their opinion does either. The markets are constantly pricing in multiple factors.
For retirees and those workers saving for retirement, we do not believe this single event should change your target allocations. We believe that you should target 18 months of withdrawals in short term high quality fixed maturities, the next 18 to 42 months in midterm high quality fixed maturities of matching duration. Instruments fitting the standard are usually simple money markets, cds and u.s. treasuries. This should allow the average investor the opportunity to avoid panic selling. Studies have shown that the average investor does tend to panic. This could be your investment edge in simply avoiding panic.
On the opportunistic side, if one has more than enough fixed maturities at the current extremely low interest rates, we believe the next couple months may allow investment bargains to deploy that stash. We do not believe it helps to panic buy, either.
If you have any questions regarding your personal portfolio and financial situation, we are glad to help.
See you next time.
James Pope
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