After last week’s Brexit referendum and its surprising outcome, it’s hard to watch the news without feeling your stomach twist over what in the world is going on. Whenever the markets scream bloody murder, your instincts deliver a sense of unrest ranging from discontent to desperation.
Financial author Larry Swedroe has called this your GMO response: Get me out! The Wall Street Journal personal finance columnist Jason Zweig explains it this way: “Losing money can ignite the same fundamental fears you would feel if you encountered a charging tiger, got caught in a burning forest, or stood on the crumbling edge of a cliff.”
Basically, you can’t help it. These sorts of responses are being generated by the amygdala lodged deep inside your brain, over which you literally have no control.
So, first, take a breath. Now another one. Next, remember that there is a fine line between remaining informed about global goings on, versus letting an onslaught of news take over your brainwaves and trick you into rash reactions.
In that context, it doesn’t take long to realize that the breaking Brexit news raises myriad questions, with few swift and comforting answers currently available.
In lieu of fixating on the bounty of in-depth analyses (when in reality the answer to exactly what is coming next is: “Who knows?”) it’s worth remembering that capital markets have been encountering and absorbing startling news for centuries. When viewed close up, the mechanics can be ear-piercingly loud, but they actually have a history of working marvelously well in the long run – at least for those who heed the evidence on how to participate in the upside rewards while managing the inevitable downside risks.
What Should You Be Doing?
In short, very little at this time … which we understand, can be one of the very hardest things to (not) do. So let’s talk about that.
If you have followed our advice and properly positioned your portfolio to withstand your personal tolerance of and need for volatility (risk) , you can congratulate yourself for having already prepared as best you’re able.
While the outcome of the Brexit referendum is certainly new and different, its impact on the market is old hat. These are the sorts of events we have in mind when we prepare and manage our clients' portfolios. Using global diversification, effective asset allocation, and careful cost management, the goal has been – and remains – the same. Our aim is to expose each investor's portfolio to the market risks and expected returns needed for building or preserving your wealth, while minimizing over-concentration in any one holding. That way, investors are best positioned to avoid bearing the “Ground Zero” worst of it when true market crises do occur - and this probably isn't one of those (based on past history such as the Asia/Russia Crisis, Mortgage Crisis, Eurozone Currency Crisis, etc).
If the unfolding events are causing you to realize that you aren’t as keen as you thought you were on bearing the risks of investing maybe you don't have the right portfolio. Real life is very different from theoretical exercise. Learn from it.
Still, we would strongly suggest that this is no time to act on those insights. In fact, it’s likely to be the worst time to do a “GMO.” First, it is likely to cause significant avoidable financial loss. Plus, while it may temporarily feel better to have “done something,” it leaves you with no plan for the future. That can generate more chronic unhappiness than it briefly relieves. Life is too short for that!
If you’re having your doubts, consider your current feelings an important and valuable insight about yourself, but please, please sit tight for now. There will plenty of time for thoughtful reconsideration of your asset mix in the near future. Please let us know if we can help.