What BREXIT Means for Long Term Investors–Nothing

Yesterday Britain voted to leave the European Union. Called BREXIT, the vote sent stock markets into turmoil. As of this writing, markets are down as much as nearly 8%:

  • FTSE 100 (London): -4.24%
  • NIKKEI (Japan): -7.92%
  • DAX (Germany): -7.22%
  • HANG SENG (Hong Kong): -2.95%

The U.S. futures are also lower, with the DOW down nearly 3% and the S&P futures down more than 3.4%. Oh, and PM David Cameron announced his resignation.

The Tabloids and newspapers are having a field day with the news. Here are some of the headlines:

Investors are nervous. Here’s an email I reviewed from a reader named Barbara just hours after the vote:

One more thing – might you also discuss the UK’s BREXIT and how / why it impacts the markets? (obviously, they are /will be down)  I have YET to invest most of the funds I mentioned below (awaiting your next podcast) – and not sure how the BREXIT might impact my asset allocation, investments and/or timing.

Thanks so much again!!

It’s a great question. My answer is simple. BREXIT is irrelevant for long-term investors. Or put another way, BREXIT will be as relevant to long-term investors 10 or more years from now as the following are relevant to markets today:

  • the Great Recession of 2008-09
  • 9/11
  • the tech bubble
  • the 1987 stock market crash
  • Stagflation of the late 70s and early 80s
  • Vietnam
  • the list could go on

It may be tempting to make a move in panic as markets react to the news. For long term investors, however, the best move is no move at all.

You can listen to today’s podcast for more thoughts on this historic vote.

Published or Updated: November 7, 2016
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Murry ODonnell says:

    Hi Rob- I very much appreciate your blog and read it weekly. Thanks for the clear, relevant material. Regarding your wise advice on long term investments and Brexit… what advice do you have for those of us on a shorter timeframe?
    Thanks, Murry O’D

  2. YYZ says:

    While we should “stay the course” it’s wrong to say the past events were irrevelevent. Every one of those past events changed today’s ecomony. We don’t have any way to know the result of the change.

    Using 9/11 as an example: We now have hundreds of thousands of TSA workers and a Department of Homeland security. The U.S. spends billions of counter terrosim that would NOT have been spent if not for 9/11. How does that affect today’s economy vs how the economy would be if that event didn’t happen? We don’t know. But certaintly there has been an affect.

    what would all those TSA employees be doing today if 9/11 didn’t happen? Some might be unemployed or under employed. Others may have found higher paying jobs. What would the money the US spends on counter terrorism be used for instead? Was another event prevented?

    We cannot know the answers. But to suggest that event or any of the other examples are not relevant is wrong.

    The best we investors can do is stay the course, only because we don’t know the long term affects. But there will be long term effects.

    If 9/11 didn’t happen, maybe our economy would be much stronger today (lower under employemnt, higher GDP, etc). Or maybe without TSA and DHS, there would have been additional attacks and the economy might be weaker.

    We just don’t know. So, yes, the best we can do is stay the course, but that doesn’t mean these events are irrelevant to the economy is not true. They are relevant to the economy, we just don’t know (nor can we know, even in hindsight), what the net difference would have been.

    • Stephanie Colestock Stephanie Colestock says:

      That’s a very valid point and no, we have no way of quantifying how our current economy has/has not been affected. Thanks for the alternate perspective!

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