The referendum was a clear example of the power of political persuasion. Surveys after the event indicate that a lot of folks who were in favor of the U.K. remaining in the Union didn't bother to vote, assuming their side would be the winner. Meanwhile, some of those wishing for the Brexit voted for that outcome without understanding the ramifications, or even believing their vote mattered. In part, they responded to emotional appeals to halt immigration and protest the regulations coming from Brussels, both of which are important problems. But, leaving the EU will have a direct and long-lasting impact on the economy that will have a serious effect on individuals.
What does the turmoil in Great Britain and the rest of unified Europe matter to those of us who live in America and are retired, or moving in that direction? Our political narrative seems to be leaning toward a turning inward of our economy and commitments. Trade pacts, tariffs, protectionism......concepts most of us are not well versed on but have a direct effect on our daily life have taken on a new urgency since the U.K. vote.
Satisfying Retirement Journey is not a financial blog. I am not going to give my opinions on the relative merits and pitfalls of such talk. But, I am comfortable in offering some thoughts on how all of this may impact your retirement.
Certainly in the short term, the Brexit vote will be a drag on the world's economic health. As of this writing, the Dow Jones Average has recovered most of the nearly 1,000 point drop it suffered in the first few days. If you were brave enough to look at your investments during that period, antacid pills were probably required. Now, with more than a week of the upheaval behind us, things have stabilized. No doubt more economic shocks are ahead of us. But, the initial shock has passed.
Looking ahead, it could take two years for the U.K. to cut its ties with the European Union. During that time there will be ongoing negotiations to determine the part Great Britain will play in the world economy. The world markets hate uncertainty and that will be our future for quite some time. I expect that means difficulty in planning and projections of financial impact and that translates into an unstable period.
For our retirement planning, I suggest this should mean four things:
1. Make no immediate changes to retirement investments or holdings. The worst time to make financial decisions is when stress and uncertainty are present. Just ask someone who dumped everything in 2008.
2. Review any foreign holdings you have. Those in European countries should be watched carefully as things unfold over the next several months and years. Projections of the Brexit effect on financial growth are purely guesses at this point. All foreign investments need extra scrutiny in periods like this. Yes, money is made in down markets if you know what you are doing. Abandoning investments outside the U.S. is not the answer. Being vigilant is.
3. If you have been looking for an excuse to downsize and simplify, use Brexit as a motivator. Sometimes it just takes an outside event to push us in a direction we want to travel. Use economic uncertainty as a reason to reduce your expenses and cut back on consumption. Even if there is little direct impact on your financial health from the world situation, cutting back to bring needs and wants in better balance is always a good thing.
4. Pay attention to the upcoming election, get beyond the sound bites, and vote in November. As I noted earlier, there are reports of "buyer's remorse" from some who voted for leaving the European Union. Those folks say they did not know the impact their "leave" vote would have on their daily lives, or they thought of their vote as just a protest that would not affect the final results. Many in the "Remain" camp made similar miscalculations when they assumed the outcome of the referendum would be to stay, so they didn't bother to vote.
Could we allow assumptions and miscalculations to have unintended consequences this fall? Absolutely. Is there a "do-over" option come November 9th? Not until November of 2020.