MANSFIELD — Despite volatility in the U.S. economy’s near term due to the U.K.’s decision to back out of the European Union, local financial advisors are preaching prudence.
On Thursday, June 23 the United Kingdom held a referendum vote to let voters decide whether they want to leave the EU or remain. Leave won by 4 percentage points with the final result showing 52 percent to 48 percent.
Since current EU members represent around 7 percent of the world’s population, the decision will likely cause a ripple effect, warranting close monitoring by financial advisors and personal financiers.
Also, according to a Merrill Lynch newsletter, the historic decision produced a historic reaction in markets. “Upon the announcement of the result the British pound fell as much as 11 percent to its weakest level since 1985.”
Lincoln Financial Certified Financial Planner Charles Hahn recently issued a letter to his clients that urged them not to panic, relating the Brexit situation to 2008’s repression.
“As the fall and recovery from the sub-prime crisis and other crises have shown, panic is not a strategy,” Hahn wrote.
Hahn acknowledged the Brexit situation as one that will cause “considerable volatility” but estimates the U.K.’s separation from the EU could take months or years before permanent changes are seen.
Both organizations predict high volatility in the short term.
“The U.K. exit negotiations are likely to be messy and lead to a contraction in the country’s economy, creating headwinds for the eurozone and the U.S.,” reads a Merrill Lynch newsletter.
However, the company advocates for a risk-neutral investment portfolio.
“(We) continue to emphasize diversification, high-quality and cash flow as major themes,” it reads.
Modern Woodmen of America agree with the prudence message. Compliance Analyst Karen Mital said investors should stay the course.
“Although the ‘Brexit’ situation affects markets, don’t make quick changes. My suggestion in this case is the same as it would be following other national or international events – stay the course and ride it out for the longer term. And when you have concerns, contact a financial professional to discuss your specific situation before making any decisions.”
