On June 23, citizens of the United Kingdom voted to leave the European Union. There has been a lot of speculation leading up to and since the vote. Many of the longer-term implications of the referendum remain unclear. The process for negotiating what a UK exit may look like is just beginning.
Market prices went down with the news. The Toronto’s Stock Market Index was down 1.70% at the close of business on Friday (source). A drop in prices is generally due to lower expectations of cash flows, higher discount rates, or both. In some cases, a drop is also due to investors demanding liquidity. Caution is warranted in allowing short-term market movements to impact long-term asset allocation. Long-term investors recognize that risks and uncertainty are ever present in markets.
In the current situation, some investors and economists may expect lower cash flows due to possible trade barriers. Trade barriers may not be implemented. Uncertainty about changes in the economic landscape and regulations may drive higher discount rates.
It is difficult to know when good outcomes will materialize before they happen. By attempting to time the right moment to invest or redeem, one risks not enjoying the potential benefits of good outcomes. Many of those who exit the markets miss the recoveries. What I have often seen in the past is that investors who remained in well-diversified portfolios were rewarded over time.
Before making any investment decisions, consult with a financial professional about your specific situation.
The UK will have up to two years to negotiate a withdrawal, during which time it remains subject to EU treaties and laws. Any potential changes depend on what path the UK and EU decide to take.
About Colin Barry – Canfin Financial Group
Colin Barry is a Certified Financial Planner (CFP) who works with families and small businesses to plan their finances and make the most of what they have. Visit www.colinbarry.ca for more information. Fee for service financial planning and investments provided through Canfin Magellan Investments Inc. Insurance provided through Canfin Capital Group Inc.