The 2nd Quarter of 2016 can likely be best summed up in one word from activity in last week of the quarter: Brexit. If it wasn’t on your radar before, it is now. Britain’s June 23rd vote to leave the European Union caught many by surprise, experts and amateurs alike. Most followers believed that Britain would vote to stay in the EU by a narrow vote. The Brit’s decision to leave the EU muddied world markets in the short term and created uncertainty for the long range. Before delving further into Brexit, let’s review market action for the whole second quarter. The S&P 500 finished up 2.65% fueled by a rebound in the final days. The International markets continue to struggle as measured by the MSCI EAFE which was down -1.46%. Lastly, the Barclays Aggregate Bond Index was up 2.22%, as nervous investors moved to the relative safety of the bond markets.
Most economists feel that England’s decision to leave the EU will result in slower GDP growth over the coming years. As a global financial center and the world’s fifth largest economy, the impact will likely sprawl beyond the English borders. This speaks to the larger global issue of the overall fragility of the world economy. Any unanticipated event, coupled with the backdrop of slow economic growth, political unrest and aggressive monetary policy cause markets to react and typically to overreact. What might its impact on your investment portfolio be and how do we respond? Below is a sketch by financial writer Carl Richards which captures Essex Financial Advisors core philosophy and investment approach.
Here’s a list of “What You Should Focus On” as it applies to your personal portfolio:
Things That Matter
- Have an investment plan and play that plan
- Be disciplined to your investment strategy; don’t let short term noise distract you
- Be diversified – parts of your portfolio will be outperforming, while others areas are underperforming
Things You Can Control
- Fees and Expenses – lower is better and increases the likelihood of longer term out performance. Our total fees are 25%-40% less than industry averages.
- Be Tax efficient as taxes and can seriously reduce returns
- Buy investments that pay interest or dividends so that you are continually get paid while you wait for long term growth, and don’t over pay.
- Pay as much attention to risk and as you do to return, rebalance, take profits, sell losers
Noticeably absent from the lists above are any mention of daily/monthly market movements or the latest hot investment.
These are factors that:
- Do Not Matter
- Can’t be Controlled.
While both of the above make for good cocktail conversation, they won’t increase the likelihood of solid long term returns to meet retirement goals. The daily mission of EFA is to focus on the seven items listed above to increase the likelihood of success.
We started our discussion with Brexit, but the issue is a much larger issue and needs to be framed in terms of portfolio strategy and how we manage economic fragility in your investments. Please call me at any time to discuss your portfolio or any other financial concerns you may have. Thank you for your continued trust and confidence.