It’s been all over the headlines—Brexit. What are they and what do they mean to you as an investor in the United States?
Brexit, simply put, is the British exit from the European Union (EU). The Brits voted to leave the EU within the next 2 years. The idea behind the EU is to allow for open borders and offer free trade and movement of workers throughout Europe. Optimistically it sounds fantastic; unfortunately reality hasn’t been the Utopia they expected. Let’s take Greece for example. Because the EU is a “partnership” financially all countries are on the hook if Greece can’t pay the bills. This, along with immigration and border control problems, to name a few, has caused Britain to vote to leave the EU, and other countries may follow suit.
Regarding Brexit, basically two camps exist in Britain. The first camp is pro EU, union, globalism, and keeping it together. They believe they are economically stronger together and can ride out the storms. They are starkly aware that if Britain leaves, other countries may follow and that would cause economic problems for everyone. Their extreme doomsday opinion of Britain’s exit is a pending global financial meltdown. Admittedly, their math may be faulty.
The second camp is pro exit from the EU. They believe smaller government is a better thing, and typically smaller economies tend to do better. Even though the US is a large economy, remember that we are actually 50 smaller economies linked together. Britain has a natural sense of sovereignty, and wants more control over their economy and their trade deals.
Either way, Britain and the EU need to work together. We live in a global economy and other markets have an impact on us directly. The U.S. market facts are this . . . when Brexit happened the market immediately dropped almost 1,000 points. With so much 401(k) money tied up in the markets you can imagine the amount of wealth that was literally on that roller coaster. Watching current events affect the markets in real-time emphasizes just how volatile the market is.
Any major political or economical event can make the markets swing wildly and disrupt commerce. The U.S. is currently experiencing the political movement of #blacklivesmatter and what is arguably the most tumultuous presidential election ever. Regardless of your personal feelings about these emotionally charged issues, realize that current events can cause significant swings in the market and your 401(k). As an investor it’s hard to avoid these top five financial and emotional experiences:
1. Being preoccupied with the Market
So much money and turmoil is circulating in the world, and you get all of your world information in real-time. Who knows what’s going to happen next? You’re facing an environment where things could get really crazy. These political and economic pressures create a huge unknown, and the human brain wants to solve unknowns—you’ll have a great potential to worry about how each major event will affect your investments.
2. Trading from an emotional level
Human nature tells us that people make decisions largely based on emotions—whether for fear, greed, exhilaration, or risk. You’re not going to be able to escape it. Even if you do and you’re not trading emotionally, other people are. The truth is that most of the assets in the U.S. are held by 55- to 70-year olds. If their assets are put in jeopardy, they’ll sell. Major sell-offs could decimate your 401(k).
3. Stress caused by staying the course
Saving and investing are not the same thing. When you invest in the market, you depend on a zillion other factors to grow your money. One big factor you depend on is that people don’t sell all at the same time, which is why your advisor will tell you to stay the course. But holding on to your investments as they drop is stressful. Even though you have been told by advisers that this makes you part of the solution and not part of the problem, there is no way to completely avoid the stress.
4. Worrying if this is the time the market will drop and not recover
Nobody can predict the future of the market and what will happen. It may be steady and on target for years to come, but we know for certain that both national and global current events make the roller coaster affect a sure thing. All it takes is for major events to tank the market when you need to cash in your investment.
5. The terms “risk” and “unknown” keeping you up at night
For investors with major amounts of money in a 401(k) it’s impossible to avoid stress from a falling market. Investing your money is an automatic commitment to risk. We are living in one of the most disruptive times in human history, but here’s the catch—disruption is always good. It shakes thigs up, gets us out of the status quo, and promotes innovation. Part of the good news is these stressful emotions have pushed knowledgeable investors to find better solutions for saving, investing, and growing wealth. We have built a business on finding better solutions to these problems. Our Perpetual Wealth Strategy allows you to get off of the market roller coaster and charge of your wealth, effectively lowering your stress due to a volatile market.
At Paradigm Life, we know the true nature of wealth rests with the individual. And we want to help you educate yourself in placing assets where they give you the most opportunity. Learning and participating in our strategy is not just your insurance policy . . . it’s your market insurance policy.
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FAQ
Q: Why should individuals be concerned about the impact of Brexit on their 401(k) accounts?
A: Individuals should be concerned because Brexit can have significant repercussions on international markets and trade agreements, potentially affecting the performance and growth of their retirement savings.
Q: What are some of the ways in which Brexit can influence 401(k) accounts?
A: Brexit can influence 401(k) accounts through changes in currency exchange rates, international market volatility, trade agreements, and the performance of global investments, all of which may have implications for the value of retirement savings.
Q: How can individuals take proactive steps to address the potential effects of Brexit on their 401(k) accounts?
A: Individuals can proactively address these effects by diversifying their investments, staying informed about global economic developments, and seeking guidance from financial advisors to make informed decisions aligned with their long-term retirement goals.
