Confounding world expectations, Britons have voted to leave the European Union behind and strike out on a path of their own. While world markets are reacting negatively, what exactly does this unexpected decision mean for your portfolio and our economic future as a country?
Read more: 6 ways to buy stocks for free or very cheap
The vote heard ’round the world
British polls closed last night (June 23) at 10 p.m. London time. When the votes were finally tallied, 51.9% of U.K. voters wanted to leave the European Union while 48.1% wanted to remain.
By headcount, it was a very close vote with only 1.2 million people tipping the scale in favor of leaving in a nation of more than 65 million.
In the immediate aftermath of what’s been dubbed ‘Brexit’ (British exit), a few developments have already occurred.
First, British Prime Minister David Cameron — a staunch supporter of staying in the 28-member European Union — announced his resignation.
Second, Scotland has announced it will likely hold its own referendum to break away from the U.K. and remain with the European Union.
So what’s next? It will likely take several months for Cameron to leave and even longer for England to work out the terms of its exodus from a united Europe. In the meantime, more questions remain…
What should you do next?
No matter what happens, don’t let the noise of today scare you from saving for the long haul, which is defined as money you won’t need your money for 10 years or more. Just keep the following in mind:
Check your portfolio. When is the last time you actually looked at your holdings? The first thing to do is a checkup. Figure out if your asset allocation makes sense for you. For many people, what makes the most sense is a target retirement fund. You select the year closest to when you want to retire and simply put all your money into it. Then the fund manager adjusts the risk level over your working years.
Know your retirement horizon. If you have 20 or 30 working years ahead of you, don’t worry about what’s going on today. Just keep dollar cost averaging. Do not allow news of today to take your off the target you are trying to achieve, which is long term financial security.
Don’t put money in employer stock. When you take your 401(k) money and put it in employer stock, it’s like putting all your eggs in one basket. You’re getting your paycheck from your employer and you’re hoping to build up a healthy retirement on your employer’s back. Doing it that way ignores that companies have a lifecycle just like people. They do well for a period and then they may lose their way over time.
Investing should be dull so you get to live an exciting life. A lot of people think investing should be exciting because they live dull lives. But the exact opposite is true. That’s how you survive if a stock market crash comes.
For more money advice, see our Money section.
Read more: Clark’s Investment Guide