Tonight, the United Kingdom voted to depart the European Union, sending shockwaves through financial markets all over the world. The British Pound has already recorded its worst-ever single-day decline, S&P futures are already down over 3%, and markets are in freefall worldwide.
In addition to the very likely event of the UK exiting the European Union, there are a series of secondary scenarios that may play out. Other EU countries with a similar insular/nationalist movements may be emboldened and attempt to withdraw from the EU as well, potentially causing it to collapse. The Scottish people, who strongly favored remaining in the EU, are likely to hold another independence referendum, and this time it’s very possible that it will succeed and the UK itself will break up. Markets may be responding to this one event for days, weeks, months, or even years.
Yes, these are uncertain times. But don’t worry. I’m here to tell you exactly what to do.
Exactly What To Do
If you were an investor before the Great Financial Crisis of 2008-2009, think about what you did at that time. If you sold, do you regret it? Well, my friend, your redemption is at hand, because much as human nature conspires to convince us that this time it’s different, this time is no different.
If you only started investing since the Great Financial Crisis, you’ve likely considered what you would have done at that time. Wouldn’t it have been amazing to buy like crazy and cut years off of your retirement time? You’ve assured yourself, with a certain degree of smugness, that you certainly wouldn’t have sold as all of those buffoons did back in 2008-2009!
For both groups, what we say and what we actually do is where the rubber meets the road. Yes, it’s easy to say how you will respond to a potentially major correction, financial crisis, or even a global financial meltdown. It’s another thing entirely to actually act as you predicted you would.
So now, before things get any worse, close your eyes. Don’t look at what the market is doing right now. Don’t look at how much your investments have gained or lost since yesterday. Look inside yourself and consider this scenario:
It’s 2036. The UK EU referendum is a distant memory. You retired early many years ago thanks to your wise response to scary market conditions. As you relax with a warming glass of Scotch, you think about that day all those years ago when you made that fateful decision. When everyone else behaved irrationally, you saw opportunity.
What was it you did again? When everyone was spooked, what did you do differently to weather the storm? Maybe you bought continuously through the whole affair. Maybe you took the opportunity to rebalance. Heck, maybe you even sold stuff on Craigslist to take advantage of the sale on stocks worldwide.
The most accurate way to evaluate an investment decision is in retrospect. Since time travel hasn’t been invented yet, we have to settle for the next best thing.
Now open your eyes, and act.