Did you “Brexit” the Market?

by Robert DeVries

Earlier this summer, financial markets were rocked by the news that the United Kingdom referendum to leave the European Union had passed. The referendum, or “Brexit” vote as it was commonly known, was held on June 23, 2016. Many pundits predicted a “stay” vote would win, and when it didn’t, the markets reacted to the “leave” victory.

While the date of the vote was known well in advance, the outcome was not. The market reaction to the unforeseen result was significant. The Financial Times Stock Exchange 100 (on Google Finance INDEXFTSE:UKX) and the Standard & Poor’s 500 (INDEXSP:.INX) both dropped over five percent the next two days. Some investors, fearing the worst, headed for the exits.

The market recovery was equally unpredictable and swift. By the end of July, the FTSE 100 was up six percent from the June 23rd close and the S&P500 2.9%. Investors who sold out at the close on June 27th missed a 12% recovery in the FTSE.

The Brexit vote and market reaction is a great example of an unforeseen event, or in this case result, that rapidly changed market pricing. Several nervous investors sold in the first two days and missing the sudden recovery damaged their returns. They were waiting for the financial picture to be clearer to reenter the market but there is no “all clear signal” for when it is safe to get back in.

Your best course of action is to match your risk tolerance with your required rate of return in your WealthPlan™ and stay exposed to the market for your proper asset allocation. Trying to time the market or miss a downside event will make it much more likely to miss an upside event, as the market has an upward bias.

Not sure what is your required rate of return or you don’t have a financial plan? Contact our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area and we would be happy to help you understand how market risk and return work in the context of a WealthPlan™.