It’s hard not to get spooked by the economic and financial uncertainty unleashed by the Brexit stunner in Europe. And some investors getting close to retirement who haven’t paid much attention to their asset allocation might want to make a few protective moves.
But much of the counsel coming from financial planners as equity markets plunged is to keep calm and carry on, focusing on the long term and resisting the temptation to time the markets.
Investors should put Britain’s vote to leave the European Union in perspective, said certified financial planner Michael Kitces of Pinnacle Advisory Group, noting that the United Kingdom is less than 4 percent of global gross domestic product.
For U.S. investors, he said, “the fear of the things it could be is far worse than any of the outcomes it actually can be.”
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Look at the trauma over the Greek debt defaults a few years ago and how volatile the markets got, Kitces said. While it was agonizing for Greece and a source of political and market turmoil for Europe and investors around the world, in the end it didn’t turn out to be of tremendous economic consequence for U.S. investors.
The U.K. is larger than Greece but is still relatively small in the grand scheme of the global economy, Kitces said.
Steady nerves are as important for investors now as they were in 2008, said certified financial planner Michael McKevitt of Guillaume & Freckman.
“The problem with selling now is that you have to get back into the market,” he said. “When will the client who is nervous now not going to be nervous about buying back in? The answer is when there is less uncertainty, which, nearly by definition, is going to be when the market is higher.”
Certified financial planner Ian Weinberg doesn’t need to tell clients to get out of Europe or other international holdings now because he started doing that about a year and a half ago.
Weinberg’s advice for older investors is to look at how big a chunk of their portfolio international holdings are now and work on understanding the risk and reward they represent. Then they could “strongly consider looking at other asset classes in the U.S. that have better risk and return parameters.”
He added: “I know asset allocators say you need an allocation that will give you broad global diversification. But I say not when the risk/return equation is so upside down.”
Weinberg thinks you can be amply diversified owning segments of the U.S. economy and U.S. markets, with companies that have acted “like true fiduciaries by having a long and strong history of dividend increases and good cash flow returns.”
He thinks there are overlooked stocks in the agricultural and health care sectors that have great dividend returns and good potential.
Vanguard’s Francis Kinniry sees the turmoil as more proof of the role of a prudent, diversified portfolio that pairs equities with high-quality bonds.
Wayne Park, head of T. Rowe Price’s business focusing on individual investors, counsels calm as well.
“We saw spikes in call activity earlier (Friday) from both 401(k) investors and personal investors, but the volume has stabilized,” he said.
And while mutual fund giant Fidelity saw elevated trading volume in brokerage accounts, it said its customers were looking at Friday’s pullback as a buying opportunity, with customers making 2.25 buys for every sell.