The U.K. voted to leave the European Union (EU) and stock markets around the world had a negative reaction. What should you do? First, a little background on what happened.
The vote by U.K. citizens was a non-binding referendum, so nothing officially changed today. Based on the referendum, the U.K. Prime Minister, David Cameron, announced that he will resign by October of this year. Mr. Cameron lead the stay in the EU coalition and feels it would be better for someone else to lead the U.K. through the EU exit process.
The U.K. has never been as tightly connected to the EU as some members, retaining their own currency and passport monitoring. But, there is still a lot to do. Once the U.K. officially notifies the EU they are leaving, it is estimated that it will take several years for the U.K. to negotiate new trade deals and unwind their other EU connections. Despite threats from the US and other countries during the debate to put trade negotiations with the U.K. in the back of the line if the U.K. left the EU, my guess is that those negotiations will be fast tracked.
The US stock market (Dow 30) was down 3.4% today. To keep that in perspective, it does not even come close to cracking the top 20 daily percentage declines (the 20th largest decline was 6.98% on September 29, 2008, more than double today's drop). Markets do not like political instability. You can never know for sure, but my guess is that this will be a small blip with a relatively quick recovery. The U.K. wants to remain friendly with the US and their European allies, so everyone should cooperate and make the transition as smooth as possible.
So, what should you do with your investments? First, you should have a written plan with a portfolio designed based on your goals, risk tolerance and investing time horizon. Remember that short-term volatility is why stocks have a higher long-term returns. Times like these are when your plan can help you stay the course and improve your chances of reaching your financial goals!