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Brexit – Why It Is No Big Deal

That’s right Brexit is no big deal!

It’s 8:30 AM in Chicago, Illinois as I start to write this article.  Let’s set the stage a bit further.  At 5:30 today I got up, did my meditation, did my journaling, checked my email, and took a look at the news.  There it is at the top of the headlines “UK Votes To Leave EU” and “Markets Tumble”.  I closed my browser and headed off for an hour run on the trails.

That’s right a financial advisor, that has fiduciary responsibilities to my clients ignored the news and went on about my daily business.  Folks, this is the same story that I’ve written about time and time again:

  • All things in life come down to faith over fear

And let’s face it, fear sells newspapers and ad space a lot better than faith does!

Hopefully anyone reading this has a solid investment strategy in place governed by an Investment Policy Statement (IPS).  If they do, they also will be going about their daily business without any concerns.  If they don’t they are probably panicking because of the line of BS that the press is feeding them.

Let’s dig in to this a bit further / get you some background that, hopefully, will help set your mind at ease a bit:

  • The UK voted to leave the EU.
  • That’s mighty big of them given that they have NEVER embraced the Euro and have always had certain exceptions that they exercise even as part of the EU. For those of you in the US, that are not familiar with the EU, the REST of the countries in the EU use the Euro as currency (just like we use the dollar).  The UK uses the pound.
  • There are lots of reasons that the vote went this way. However, at the core is a simple bit of human nature.  Those in the UK that voted to leave believe they are better off alone than with the rest of Europe.     How’s that isolationist philosophy worked out for states over time?  Don’t think that one ends very well.  Brexit is just another example of isolationism!
  • Today is June 24, 2016. Yesterday the S&P 500 (an index of 500 large cap stocks / a common surrogate for the “stock market”) closed at 2113.  3 months back on March 28, 2016 the S&P 500 closed at 2037.  That means the last three months have had the stock market up 3.7% (excluding dividends which would make it even higher!).  I’m likely not going out on a limb here when I say that most people that own stocks did not feel euphoric yesterday about the 3.7% gain in the stock market over the past three months.  More likely it was a kind of “yeah whatever” feeling.  However, 3.7% in three months is pretty darn solid!
  • At 8:53 AM, the S&P is currently at 2057. That marks a one day drop of 2.7%.  However since March 28 it is still positive 1%.  And yet the gloom and doom prognosticators are coming out of the wood work telling us that the sky is falling.  Folks, I cannot read the future, but I can tell you that EVERY time some big news event hits, the sky is projected to fall again.  And every time in the past (no guarantee of the future!) the sky has not fallen.
  • Some examples of “gloom and doom”
    • In 2000 the S&P was down 9.1%
    • In 2001 the S&P was down 11.9%
    • In 2008 the S&P was down 37.0%
    • In each of these cases the “gloom and doom” crew was out in full force
    • (NOTE – Returns numbers are from the Dimensional 2015 Returns Source Book)
  • Why the “gloom and doom” crew was wrong in the past:
    • From 2000 to 2015 the S&P return was 4.1% annualized. That INCLUDED the following events:
      • The tech crash
      • 9-11
      • The banking crisis
      • Multiple wars
      • Lots of other terrible things

Hopefully after reading through this and thinking about things a bit more, you’re feeling a little calmer.  However, my guess is that there is still some nervousness in your stomach.  That’s normal.  We are WIRED to dislike risk more than we like reward.  We are risk adverse – that’s how we survived when the saber tooth critters were roaming about.  Let me offer a couple of thoughts that, hopefully will put your mind at ease.  These are the two basic beliefs that I have when it comes to “the world” that allow me to remain optimistic at all times:

  • I believe that twenty years from now there will be more people on this earth than there are today
  • I believe that twenty years from now the world economy will be bigger than it is now

Because of these two basic beliefs, I have complete confidence that OVER THE LONG run, the financial markets will be just fine.  And because I DO HAVE a personal IPS to guide my investments, I don’t worry on days like today.

So what’s the message for you to take away?  I’d offer three:

  • Today is simply another day. Yes it’ll be written about in the history books.  But it likely won’t mean a hill of beans when it comes to investing.  Don’t do anything stupid today / let your IPS guide you!
  • The press loves to scare us. Remember – Faith over Fear!  Do not let them scare you!
  • If after reading all of this you are still spooked, you need to make a change in the way you are approaching investing. It may mean getting out of the market, it may mean adjusting your IPS, it may mean getting help.  Find the help you need as fear can lead to bad things!

Finally, if you have any questions related to the above topic or any other topics related to financial planning, reach out at any time.  I love to help folks build a secure financial future so they can focus on the important things in their lives and stop worrying about things like Brexit!

At F5 Financial Planning we focus on helping individuals and families find balance between faith, friends and family, fitness and finance.  We make sure that they have the financial freedom to enjoy those things in life that are important to them.  And while we believe the left-brain facts and data are critical; we work with our clients to get them in the right state of mind to focus on the goals they want to achieve.

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Curt Stowers

Curt Stowers

Curtis Stowers helps individuals and families across the United States grow their financial assets, particularly in the Naperville, IL region. He is a Certified Financial Planner, holds a Ph.D. in Industrial Engineering from the University of Illinois, and is the founder of F5 Financial.