Keep Calm and Carry On…
On July 4, 1776, the 13 colonies claimed their independence from England, an event that eventually led to the formation of the United States. Each year on July 4, also known as Independence Day, Americans celebrate this historic event.
This year’s holiday has been overshadowed by the British departure from the European Union, commonly referred to as Brexit. The vote to exit has been deeply polarizing in Britain.
Over time, Brexit will have an impact on the global economy. It is uncertain at this time what this impact will be. First, Brexit will be incorporated into an act of Parliament in the United Kingdom and formal notice will be served to the EU. After that, negotiations will begin on the actual exit terms. Those negotiations will likely take two years or more.
Stock markets do not like uncertainty and you will see more volatility, which might tempt you to make dramatic shifts in your portfolio. It is particularly tempting to sell assets that are perceived as riskier. History has shown that this selling might not achieve the desired result.
Nothing about the Brexit vote suggests that the fundamentals of capitalism have changed. Nobody knows for sure whether we’re in for a decline in the stock market of 10 percent or 20 percent, or more, even if there is a wholesale breakup of the European Union. But if all of this does happen and you are a regular, long-term investor putting a bit of money away each pay period, you’ll be buying more when prices are lower.
Everyone is asking me what to do after the Brexit vote. Chances are that your portfolio consists of a diverse mix of assets. If you have a home in the United States, its value hasn’t fallen this week. Almost all bond positions have increased in value. Our typical balanced portfolio has foreign equity exposure between zero and 5 percent. Most balanced portfolios have enjoyed nice returns so far in 2016 even after the Brexit sell-off.
My advice remains the same: Determine your long-term investment goals. Decide how much risk you are willing to take to reach these goals. Construct a portfolio using simple and inexpensive investments. Maintain discipline and do not let the outside world (talking heads on TV, smarty-pants relatives and friends, sellers of financial solutions, etc.) change your perspective.
Try to give the situation in Europe some time to work itself out. There are a few investments that can deliver returns in a flat stock and bond market. Meridian is adding income-producing investments, such as dividend-paying stocks, GNMA bonds and possibly publicly traded real estate investment trusts (REITS) to many portfolios. The most important thing is to keep saving even when the markets are volatile.
“Keep Calm and Carry On” was the message on a motivational poster produced by the British government in 1939 to prepare its citizens for the predicted German air attacks. I believe that this remains good advice for investors today!
This column was featured in the July 4 Knoxville News-Sentinel. You can read it here: Keep Calm and Carry On…
Meet the Author
Tom Coulter, CPA
Tom is the President and a founder of Meridian Trust. Tom graduated from The University of Tennessee, Knoxville, in accounting with honors, in 1978. Tom previously worked for the international accounting firm, Deloitte. He later joined the financial medical advising firm, FIS Associates, before founding Meridian Trust in 1997. Tom has worked extensively in retirement planning, taxation, estate and financial planning and investment management. He is a Certified Public Accountant, a member of the American Institute of CPAs (AICPA), and the Tennessee Society of CPAs (TSCPA).
Tom is also credentialed as a Personal Financial Specialist (PFS) by the AICPA