What does "Brexit" mean?
On June 23, United Kingdom voters decided to leave the European Union, thus spawning the term “Brexit” from British Exit. Experts cite several reasons the "leave" vote won, including unhappiness with the UK economy, income inequality and immigration.
The European Union was formed after World War II to help promote peace through economic cooperation. Over time, it became a common market, allowing goods and people to move freely around 28 member states as if they were one country. The EU countries have a population of over 500 million people.
The long-term implications of the UK referendum are unclear. They will have 2 years to negotiate their withdrawal with the remaining members of the EU. This has never happened, so they will be in uncharted territory economically, politically and socially.
What does this mean for Markets?
Stock markets around the world had risen in anticipation of the UK remaining in the EU. The surprise decision to leave weakened stock prices, the British Pound and the Euro. Most equity markets are still above their lows from early this year and some are still ahead year to date.
Stock markets do not like uncertainty, and that's what the "Brexit" vote delivered. The rush to perceived "safer assets" like government bonds drove their prices higher and their yields to all-time lows in many countries.
How does this affect me?
Long-term investors recognize that risk and uncertainty are ever present in the markets. Those who exit markets upon identifiable events often miss out on significant recoveries. What we've often seen in the past is those who remain in a well-diversified portfolio get rewarded over time.
What we can continue to do now is stay calm, rebalance portfolios and remind ourselves to control the things we can control-emotions, taxes and costs.
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