With the potential of Britain leaving the Eurozone, there has been and will continue to be volatility in the markets and currencies.
The most important issue, when an event of this magnitude has occurred, is to ensure that one avoids the gravitational pull of short term emotion and decisions are made based on what is going to happen and not what has recently happened.
Moneyplanners investment funds or KiwiSaver clients are in highly diversified portfolios and the decision to leave the EU will have a short term impact on the UK, European and global economies. The magnitude will be difficult to decipher and will only be known in hindsight. Longer term, it could be positive or negative. The obvious is well known, with both the possibility that this leads to the unwinding of both the UK and EU, or it may finally galvanise to EU into a complete and proper union which ultimately would be positive. One should also note, that the depreciation of the pound will be a positive stimulus to their economic position at some point and that banks balance sheets are significantly stronger and more liquid than at any point in recent history.
Co-incidentally, last Thursday the US Federal Reserve released the results of their latest bank stress tests, from which we note* that the “US banking system has the financial strength to withstand an economic meltdown — and negative US interest rates — that cause losses of $385bn”, regulators said on Thursday [June 23]. Each of the 33 banks tested survived the toughest scenario designed by the US Federal Reserve. Under the simulation, which lasts for nine quarters, stock prices drop about 50 per cent, unemployment reaches 10 per cent, and gross domestic product declines sharply. For the first time the Federal Reserve also tested how bank balance sheets would cope with negative interest rates.
Markets also often over react to the most recent event and thus there may be opportunities. The respective Investment managers in Moneyplanners client portfolios will be looking to maximize any opportunity they identify over the coming months.
So the best strategy is to hold your investments for the medium to long term and let the markets settle back down.
If you have any specific questions regarding your investment funds or KiwiSaver, please give me a call.
Miles Flower