Experts all over the world predicted that the remain vote would win the day on June 23, 2016 when Brits all across the UK took to the polls to vote on whether they would remain in the EU or leave it. In fact, the same experts warned the British people of the impending doom that would follow if they, in fact, decided to not play along and voted to leave. While doomsday predictions did seem imminent for the first few days after the surprise vote to leave won the day, the global markets have since been quiet. Some experts believe, however, that the long-term effects of the Brexit have not totally been felt in the financial markets yet. If this prediction is true, how will the long-term aftermath of Brexit impact your personal portfolio, and what can you do to protect it?
According to Janet Yellen, Chair of the U.S. Federal Reserve, Britain’s exit from the EU could keep government bond yields down both in the U.S. and around the world. These low yields, in turn, may also deteriorate future returns from investment grade corporate bonds as well, she said.
However, much like the vote itself, no one can accurately predict the effects. As always, diversification is the key to a sound financial portfolio if, in fact, another storm is on the horizon. Events like these highlight the importance of diversifying to protect yourself against future losses.
In volatile times, it is important to reassess your risk-reward outlook and ensure your portfolio reflects your true risk tolerance. Based on your risk tolerance, if your portfolio is heavily weighted in any particular area, it might be time to reallocate your portfolio with the help of your financial advisor.
No one is certain how the Brexit vote will play out. The new Prime Minister, Theresa May, just announced that she plans to execute the break on or before the first part of 2017. Some experts predict that gives you until April to prepare. Whatever the outcome, it will be crucial to increase your diversification to weather any storm that might result from the UK’s actual break from the EU early next year.