Markets have reacted to the results of the U.K. referendum swiftly. The economicramifications of Brexit, in contrast, are likely to take a long time to play out. Most economists expect the long-run effects to be negative for the British economy, mainly because of the adverse implications to trade and cross-border investments.
Brexit: The only certainty is uncertainty
Near-term, the wide range of unanswered questions from how the United Kingdom will interact with European Union (E.U.) members going forward, to concerns of the E.U.’s ongoing viability, could lead to further bumps down the road.
“Markets hate uncertainty, and that’s one reason we’ve seen and could still see more volatility,” said Westaway.
At home, Brexit is likely to make an already cautious Fed even more careful. Vanguard’s Global Chief Economist Joe Davis remarked that the tenuous situation in Europe is likely to delay the Fed’s timeline to raise rates this year.
No doubt there are more questions than answers. Brexit, like other major market events, illustrates the importance of sticking with your plan and maintaining a broadly diversified global portfolio.
What you can do
If you already have an investment plan consistent with your goals and risk preferences, you’re already prepared for the present. As it has been in the past, the most productive approach is to stick with your plan.
And if you haven’t yet developed a plan, use Brexit to learn about the need to balance risk and return. Low bond yields are unappealing, for example, but as Brexit is teaching us, bonds help a portfolio weather stock market turbulence. While stocks have tumbled, high-quality bonds have rallied. At the same time, uncertainty in Europe is unlikely to alter the timeless risk-return relationship that has helped stocks deliver superior long-term returns.
For more information on how Vanguard can help, find out more here.
All investing is subject to risk, including the possible loss of the money you invest.
Diversification does not ensure a profit or protect against a loss.
Investments in bonds are subject to interest rate, credit, and inflation risk.
Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.