Are you uncertain of the markets? If you are, then you are not alone by any means. With the United Kingdom leaving the European Union and the upcoming elections here in the United States that are indeed uncertain. I have no idea what the future holds in regards to the markets, and I will not even touch on politics because this is not a political blog but one concerning finance. But let us not kid ourselves the upcoming elections will have a significant impact on the markets.
As far as the UK leaving the EU we will have to wait and see the long-term effects of that decision on the world’s economy. In the first day after the vote was announced we saw all the major markets in the world take a dive, but is that just the beginning? The Pound hit a 30-year low against the dollar, and the Euro was down against the dollar as well. And that is not because the dollar is so strong but rather this is the effect of the UK’s decision to leave the EU. And as the UK is the sixth largest economy in the world this was bound to have a negative impact on the EU, the UK and both of their currencies.
Now I am not an economist, but I do know enough to know that when you have a group of countries that are dependent on one another, and you remove a key portion, it will have consequences for the whole. In this case, the EU lost a major part of its economic power with the departure of the UK, and the UK lost a valuable asset in its ability to trade freely all over Europe. And when it comes to trade agreements the UK will now have to negotiate them on their own and without the power and backing of the EU. I do not think that the EU will experience the same issues with trade agreements as they still will be an economic force to be reckoned with going forward as long as France and Germany remain strong.
On the monetary side, it is a bonus that the UK kept its currency when the EU was formed. Since that was the case, there are no issues about resurrecting an old currency and starting all over in regards to it monetary policy, as would be the case if say France let the EU for any reason. If that were to happen France would have to issue bonds in Francs again and would be left to raise as little or as much funding as they needed. The UK kept this ability so that will not be an issue here unlike the rest of the EU. In the rest of the EU, they are told how much they in bonds that they can sell as it is all backed by the Euro and not the individual country’s currency. And the UK will also not have to worry about what its currency is valued at going forward as the Pound never left us and will simply be at the mercy of the markets and their volatility for the for seeable future.
The political landscape in the US is not a clear picture either and is just as muddled as the UK leaving the EU. No one knows who will win, what their win will mean to the US or world markets, and how their influence will be felt both here and abroad. But one thing is for sure; there will be an effect of some manner on the US and world markets as there always is when there is a major change in a world power’s leadership. I work for the Federal government and I still after over 17 years of service am always amazed at how different every administration is from the previous. I do know that we have experienced about eight years of growth in the markets, and while we have had some ups and downs in that period we will experience more days like last Friday before these situations are resolved.
So what do you do right now with regards to the US markets? Well, first you should not and I would not try to time them in any manner. No one knows when they will have a 600-point gain or a 600-point loss. Not me and not you, so do not go there at all. And to prove this point if you missed the 15 largest gains in the DOW over a 10-year period you would have a fraction of the value of someone who simply rode out the ups and downs. So if you are really afraid of the markets and feel the need to get out then, by all means, do what it is you must but I would advise against that particular strategy. Stay invested and let the markets go where they may. The only exception would be someone that is retired or about to retire, and then there may be a legitimate reason and cause to get out of the markets for a period and settle in on a cash position for a period until things become less volatile. But if you do this be prepared to pull the trigger and get back in the game at a moment’s notice. After 2009 people were too afraid to get back in the markets after things settled to a degree and yes they missed some tremendous opportunities. As Warren Buffett has said on many occasions, be fearful when others are greedy and be greedy when others are fearful. Some good words to keep in mind until after we have a change of administrations and see what the true fallout from the UK’s decision really will be.
If you are afraid to make the decisions that need to be made it may be wise for you to find a trusted certified financial advisor to assist you with managing your funds. A good planner will help you make decisions without the emotions, and they should be based on experience and current market conditions. But remember no one knows what the market will do day to day, so a financial planner is in many ways as blind as everyone else. They just have been through this before and most likely have seen these signs before as well. And if they are good they will act in your best interest and without emotions. And when things get the way they are now that can be a distinctive advantage for someone.
As to if you should keep buying if that is what you have been doing the answer is yes keep doing that going forward as well. That is the beauty of dollar cost averaging investing when the markets are up you buy less with the same amount of money and when it is down you will simply be buying more. All in all, this is an excellent way to invest as it is normally not a good idea to buy all at once as the price will fluctuate from period to period so by buying on a schedule you get the advantages of up and down markets for a lower price.
While I do not have all the answers on either of these situations, I do know that it is wise to keep up to date on current events and make decisions based on sound information. And please remember that no one knows what tomorrow will bring in the markets and please do not try to time them. Better people than we are have tried and lost when doing this so leave that alone and keep doing what is comfortable for you.
If you have any questions or need any additional information, feel free to contact me or leave a message.
