“Democracy is the worst form of government, except for all the others.”
It’s ironic to me that this quote is associated with Winston Churchill, considering all the going’s on in the last 24 hours within his home land. As you no doubt have heard, the unlikely occurred and voters in the United Kingdom voted to leave the European Union after 43 years of membership. The uncertainty that this casts on economies around the globe has caused stock, currency and even some bond markets to behave erratically today.
What I want you to know is that all is not lost, the sky is not falling, and the world as we have known it is not over. I walked out of the house the morning for an early morning run, and you know what I heard? The same thing I hear on every other morning…the birds were alive and chirping, the wind blowing through the trees which had been replenished with an overnight rain, and oxygen still filled my lungs just like it has on every other day. It reminded me that we have to concern ourselves with things that we can control, and remove worry around events that we have no control over. Brexit is one of later mold.
What does this mean for you and me?
The fact is I don’t know…no one does. There is so much still yet to be determined. The voters have made their voice known. Now it is up to Parliament to move forward and negotiate the details of their wishes. There will be months, if not years, of new negotiations between the UK and the EU and other trade partners. Any conclusions around what these new trades deals will look like and the impact on global economies is purely speculation at this point. But the fear and uncertainty in the ultimate conclusion is exactly why markets are behaving so erratically today, and probably for some days to come. The value declines do not mean that the markets think the world is collapsing…it just means that they don’t know what is going to happen, so ‘traders’ are acting on emotion, fear and possibly greed. These are never good ingredients for a long term investor’s strategy. But I do know that this vote should not change the course of your long term plan.
Trader vs. Investor
A trader is actively trying to time the market, moving in and out of investments based on one data point or another. The research shows this has never been a consistent winning strategy over time. An investor follows along with Warren Buffett’s favorite holding period for investments: forever. Be an investor, not a trader. I think Warren knows what he’s talking about.
What should you do?
The best thing you can do for your self is exactly nothing. Short term market movements do not change the course of your long term plan. Remind yourself where you stand in regards to your long term goals. Log in to our planning site, MoneyGuidePro, and see if your progress towards your goals has changed at all. [Note: if you do not yet have a financial plan built, let us know sooner than later. This tool is extremely important to ensure that you are getting the maximum return on life (ROL) and always moving towards your goals. This is much more important than worrying about your return on investments (ROI)] I assure you that your probability of your plan success has not changed. The reason is that the probability calculation takes in to account the possibility of wild short-term (and even mid-term) volatility already!
Volatility = Opportunity
You have heard this from me before…where there is fear and volatility in the short term, there is opportunity to buy things on sale for the long term investor. We are always looking to see if volatility in certain asset classes creates enough skewing in a portfolio to provide a strategic rebalancing opportunity. This pays dividends in the long run. If you have cash that you have considered investing, pay attention. If the volatility continues, you will have a unique opportunity to buy a good, long term asset at a discount.
Let me reiterate again…the best thing you can do for yourself is exactly nothing. If your portfolio has been allocated correctly based on your time horizon and your risk tolerance, you are still on the right course. Turn off the TV, ignore the pundits, and look around you…the air still fills your lungs too, just like it did yesterday, and the sun still rose the same this morning as every other day. Life is good, so enjoy your weekend. We are always here to talk, so do not hesitate to call or email with any questions.
Josh