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Planning and Guidance, Tailored To Your Life and Goals
Posted on June 22, 2016
<![CDATA[The Brexit vote is nearly upon us. Two campaigns, Brexit and Stronger In Europe, have been vying for support since the initiative was announced and now there is only one week left until British voters have their say. A play on the term "Grexit" where Greece toyed with the idea of leaving the European Union (EU), the Brexit vote is similar but at the same time, very different. Greece was in economic turmoil at the time and it appeared the majority of those in favor of cutting ties were doing so to avoid the economic austerity the EU was forcing upon them. In reality, Greece needed the EU more than the EU needed them. Britain, on the other hand, is coming at this from a very different angle. Their economy is in much better shape than Greece's was at the time and the Brexit referendum was initiated proactively by those seeking to improve the country's economic position. Should the country vote to leave, there are some immediate actions that must be taken. All the normal government documents, economic treaties and accords would have to be amended, not to mention all EU-derived laws would have to be reviewed. Of course, the UK would still be required to follow EU rules until the "divorce" is final. We won't even try to wade into the political arena and what it means for the various parties. However, we wanted to highlight the different economic and market scenarios from a very high level should the UK decide to stay or leave. Economically speaking, a vote for Britain's exit could mean short-term woes as investors go into a risk-off mode and wait to see how the dust settles. Fortunately for the UK, they did not join the currency bloc and maintained their pound sterling. This is important because their central bank, the Bank of England, does not have to scramble to ready billions in currency. However, this doesn't insulate the currency from being devalued as investors react to the split. Brexiters, in favor of leaving, cite the EU's red tape and stifling bureaucracy that is holding the British economy back as well as the billions of pounds sterling the UK government sends over to the EU in the form of membership fees. Those voting to leave also note that the UK is one of the few member-states that pay more into the EU than they get in return, essentially subsidizing other member countries. Only Germany and France pay more and get less. Voters in the Stronger In Europe camp point to the fact that capital inflows will likely stop suddenly, the pound sterling could experience a sharp depreciation and long periods of uncertainty will remain as the country renegotiates trade deals and treaties with the rest of Europe. They also point to the fact that it may be very difficult for the UK to improve upon the status quo and the trade deals the EU has already secured. What's more, the general uncertainty could be the most debilitating part of an EU separation. Businesses will ease hiring and investment, discretionary consumer spending could slow to a crawl and investors will likely pour into already low-yielding government bonds as they take a "wait and see" attitude. All of the scenarios above are important for investors to consider. Perhaps more importantly, if the British do decide to leave the EU, (whether they know it or not) they could be charting a road map for other countries to leave the union. As of this writing, no other country has a referendum on EU membership but, if Britain is able to navigate the temporary upheaval and uncertainty and come out stronger, other countries may choose to leave as well. Regardless of the vote, international markets will be likely be volatile up to and after the referendum. It's very difficult to time these sorts of events as investor reactions could be delayed or even opposite of conventional wisdom. We will keep a close eye on the referendum and the global markets as we get closer but the current polls are too close to call as of this writing. We continue to believe that the best remedy for volatility and market uncertainty is to work with an advisor to develop a comprehensive wealth plan, and quite possibly the most important part, stick to it. Sources: https://www.bbc.com/news/uk-politics-32810887 https://www.ft.com/intl/cms/s/0/1745f3c2-0d16-11e6-b41f-0beb7e589515.html#axzz46q4NXGry https://www.ft.com/intl/cms/s/2/417fb6c0-0d2d-11e6-ad80-67655613c2d6.html#axzz4BSry5rLf https://www.ft.com/intl/cms/s/0/b296fa42-2bd4-11e6-bf8d-26294ad519fc.html#axzz4BSry5rLf Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.]]>