The financial news scrolling across computers, tablets, and smartphones leaves investors wondering what the UK vote to exit the European Union, “EU”, means. The markets and Prime Minster Cameron seemed very confident the vote would result in the UK staying in the EU. Now, not only do we have UK leaving the EU, but Cameron planning on stepping down as Prime Minister.
Economics of the UK
The UK is roughly 4% of the world GDP and slightly larger than the GDP of California. Also, the UK has been the fastest growing G7 economy for the past four years. Globally, the UK is the fifth-largest importer and ninth largest exporter.
The current economic strength of the UK suggests leaving the EU may not be a wise move. British companies may lose important trade advantages that benefit EU members. In addition, the decision to exit the EU may result in London losing its role at the financial center of Europe.
What we do know?
We do know the markets receive periodic and unplanned surprises yet continue to move forward over time. People often react and make behavioral mistakes in times of event driven market turmoil with the selling of securities and abandonment of long-term plans and strategy. The markets will likely put stocks on sale and give some investors the opportunity to buy at a discount. The global and UK economies will adjust over time to the new conditions and prices will reflect the changing conditions.
What to do now?
- Does your portfolio need to be rebalanced? If so, make the proper adjustments.
- If you were planning on putting large amounts of cash to work, perhaps now is a great opportunity.
- Continue your dollar cost averaging your 401k or work retirement plan. During times of large market swings, a dollar cost averaging approach pays off. This is also true for dividend reinvestment plans.