In our June 1st newsletter, we had identified a potential “Brexit” as an event that could “leave businesses and investors with less clarity to make informed decisions, leading to market volatility overseas”. As you’ve heard by now, UK voters have decided to exit the European Union, and both domestic and international stock markets have greeted this new development of uncertainty with a flight to quality. The more immediate concern revolves around the details and timetable for how the Brexit process will be carried out. This will likely be an expensive and litigious exit that will carry headwinds for economic growth in both the UK, and the rest of the European Union. The long term concern is that the UK’s exit could be the first of many, dismantling decades of both political and economic progress in Europe.
As of 1:30 P.M. CT the S&P 500 was down about 3.5%, and the MCSI EAFE (international stock) index was down about 8.25%. The question you are probably asking yourself is how this affects your investments and financial plan. For our most conservative models, we are expecting a decline of about 1.5% today. For our most aggressive models, we are expecting a decline of about 4.5% today. This assumes no more significant developments or market movements by the end of trading.
Our reaction to the Brexit is the same as the most recent market disruptions (oil price declines, China slowdown, Ebola outbreak, etc.). We continue to remain patient with our investment strategies, and refrain from making any knee-jerk reactions to short term market movements. As Warren Buffet once said “The stock market is a device for transferring money from the impatient to the patient”.
D3 Affordable Family Office clients benefit from the advantage of having a financial plan as the basis for your portfolio structure. To the extent our clients need cash for living expenses, we have accounted for that in their portfolio composition. To the extent our clients want to minimize risk, we have accounted for that in their portfolio asset allocation. As a reminder, our clients’ portfolios are designed to achieve their lifetime goals and generally those goals have a time frame longer than five years.
The most important component to our success in helping to structure your portfolios to achieve your long term financial planning goals is communication. Please let us know if your time horizon for needing cash flow from your investments changes or if your ability to emotionally tolerate risk changes.