What Britain Leaving The EU Means

The EU (European Union) was established following the end of WW II in order to offer financial and structural stability for European countries. Since its establishment, the EU has grown to a membership of 28 countries, abiding by various rules and policies set forth by the EU Council.

One of the responsibilities of member EU countries is to accept and honor immigrants and citizens from other EU countries as part of the human rights initiatives recognized by the EU. Immigration has been a topic of contention among various EU countries for sometime. This was a decisive factor for Britain leaving the EU since its economy and cities have been inundated by foreign-born immigrants seeking jobs and a better quality of life.

The markets have reacted negatively to the announcement, pushing down stocks, the British pound, and bond yields as investors seek the perceived stability of bonds as markets worldwide acclimate.

Since Britain has been part of the EU since 1973, it is expected that the unraveling of British ties from the EU could take years. Contracts, employees, and laws will all have to be revised, reshuffled, and rewritten in order to accommodate the divorce between the two.

Now that the British have decided on leaving the EU, many believe that another referendum could possibly be presented in France and other EU countries. The concern of a domino affect is very realistic, as several other EU members are experiencing similar frustrations as Britain.

Expected effects in the U.S. include:
Prolonged low interest rates
More assets flowing into the U.S. from abroad
U.S. companies altering European contracts
Stronger U.S. dollar versus the British pound and euro

Todays market reaction to Britain voting to leave the EU is very nerve racking. Today reminds me of one of my favorite investing quotes by William Bernstein; “In the short term markets are a voting machine, in the long term they are a weighing machine.” This means that healthy companies will always win despite short term news cycles. Professor Shiller of Yale also reminds us that the value of a stock is the present value of future cash flows (dividends). Market volatility is just short term noise based on news cycles, not actual company performance. Todays emotional market reaction causes short term volatility, but not long term losses, especially the way invest focus on building portfolios using long term healthy asset classes.

Casey T. Smith
President

Also, see Vanguard’s response to the British exit here.

Have more questions? Email me at info@wiserinvestor.com or use the Contact Us page.

learn-more

Recent posts

  • When Helping Hurts: How to Set Financial Boundaries

Share This Story, Choose Your Platform!

Wiser Wealth Management, Inc (“Wiser Wealth”) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). As a registered investment adviser, Wiser Wealth and its employees are subject to various rules, filings, and requirements. You can visit the SEC’s website here to obtain further information on our firm or investment adviser’s registration.

Wiser Wealth’s website provides general information regarding our business along with access to additional investment related information, various financial calculators, and external / third party links. Material presented on this website is believed to be from reliable sources and is meant for informational purposes only. Wiser Wealth does not endorse or accept responsibility for the content of any third-party website and is not affiliated with any third-party website or social media page. Wiser Wealth does not expressly or implicitly adopt or endorse any of the expressions, opinions or content posted by third party websites or on social media pages. While Wiser Wealth uses reasonable efforts to obtain information from sources it believes to be reliable, we make no representation that the information or opinions contained in our publications are accurate, reliable, or complete.

To the extent that you utilize any financial calculators or links in our website, you acknowledge and understand that the information provided to you should not be construed as personal investment advice from Wiser Wealth or any of its investment professionals. Advice provided by Wiser Wealth is given only within the context of our contractual agreement with the client. Wiser Wealth does not offer legal, accounting or tax advice. Consult your own attorney, accountant, and other professionals for these services.

Sign up for our newsletter!

Our latest blogs, podcasts, and educational videos delivered to your inbox weekly.