Friday, June 24th was one of the most volatile days we’ve seen in the Stock Market since 2008. The US Market (S&P 500) was down about 3.50% and the International Market (MSCI EAFE) was down around 8.50%. All of this happened in one day and was a result of Britain leaving the EU (European Union).
You may be wondering what my thoughts are regarding this and how it pertains to your investment portfolio. This is not anything like we experienced in 2008. There was concern back then that banks were not solvent (we saw several banks that failed and were taken over by the FDIC). But with Britain leaving the EU, this is not a solvency issue. In my opinion it’s more of a control issue. Britain wanted autonomy over their own country. Could there be some level of fall-out as a result? Sure. But nobody knows how, when, or if that would happen.
This is stating the obvious, but the stock market is volatile. This means that it can go up a lot and it can also go down a lot. This is the nature of how the stock market works. The stock market reacts to news whether it be good or bad. Investors in the stock market accept the associated risks in exchange for larger potential returns. Without the risks, larger returns would not be possible!!
The best advice we can give is this. If you cannot tolerate the large swings of the stock market, then perhaps you should reduce or eliminate your exposure altogether. You ultimately need to be comfortable with the investment journey or you will not stick with it. But please understand that I am not saying that you should move into the market today because you are comfortable and then move out tomorrow because you are not comfortable. That would be market timing and you would likely discover an unsuccessful investment experience.
In summary, I am not concerned with this most recent event. As you’ve likely heard me say before, stock market gains / losses do not typically come in small doses over time. They come in large chunks as evidenced by Friday’s losses. We know historically that bad economic news in our economy will affect the stock market in a negative way. But we also know historically that the stock market goes up (75% of the time) more than it goes down (25% of the time). You may find freedom in accepting the fact that you have to go through the bad times to take advantage of the good times. Plus this frees you up to not try to time getting into and out of the stock market. There are too many studies that show that this is a recipe for disaster. Although appealing, it is detrimental.
We will continue to monitor any new developments and keep you posted. In the meantime, if you have any questions at all or if you wish to have a conversation about how your investments are allocated then please give me a call.
Brad E.S. Tinnon
CERTIFIED FINANCIAL PLANNER™