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    How Brexit could affect your business' bottom line

    Brexit could have major implications for many markets.

    Britain’s decision to exit the European Union has brought with it all the expected trappings of a significant news event — projections of crazy market volatility, wild headlines and a fair dose of uncertainty about the long-term impact on the global economy and our individual financial lives here at home.

    Many questions immediately arise as we pay close attention to how the event will play out in the weeks and months to come. But our perspective is the same as it has always been in times like these. Your financial plan is built with diversification and your personal risk tolerance in mind — it’s designed to weather the ups and downs that inevitably follow significant world happenings. Jared Kizer, Chief Investment Officer for the BAM ALLIANCE, reminds us of this below:

    What did British voters decide?

    To the surprise of many — including stock and bond markets — Britain voted to leave the European Union (EU) by a margin of 52 percent in favor of leaving (i.e., “Brexit”) and 48 percent in favor of remaining. The general belief from the economic community is that this decision will weaken the British and European economies since Britain both imported and exported a significant amount of its economic consumption and production, respectively, to continental Europe.

    How have markets reacted?

    At the time of this writing, stock markets have fallen precipitously and bond interest rates have dropped as well. With the exception of precious metals, commodity markets are also generally down, and the British pound has dropped by about eight percent against the U.S. dollar.

    Related reading: The biggest mistakes dentists make: Not working with a professional money manager

    Why have markets reacted so violently?

    Without question, the primary reason is that markets had incorporated a belief that Britain would remain in the EU. Stock markets had been up significantly over the last couple of weeks, and interest rates had started to move back up after being lower earlier in the month. These movements were generally believed to be an indication that the market expected Britain would remain in the EU.

    Because the vote did not go as most expected, stock markets are giving back those gains and more, and interest rates are now falling instead of increasing. We emphasize, though, that while these market moves have been swift, this is normal market behavior when a significant event (like Britain leaving the EU) turns out differently than what the market had anticipated.

    Why has the U.S. market reacted so strongly to Britain’s decision?

    We truly live in an interconnected, global economy at this point. Any decision by an economy that is the size of Britain’s (fifth largest in the world) will impact markets elsewhere, including the U.S. market. The European market is a significant trading partner for many U.S. firms, so it’s not surprising to see U.S. stocks decline since Britain’s decision is thought to be a net negative for Europe from an economic perspective.

     

    Continue to page two for more...

    Jared Kizer
    Jared Kizer is Chief Investment Officer for the BAM ALLIANCE. In 2008, Jared co-authored the book The Only Guide to Alternative ...

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