Even though everything has changed, nothing has actually changed yet. As they start to realize how long the process is likely to take, markets should gradually settle down into a new normal, as they always do.
If history is any guide, the fuss will die down soon enough
Looking at Brexit in the context of past crises—the Asian financial crisis of 1998, or even 2008—it actually doesn’t look so bad. The British-EU relationship has simply transitioned from one set of negotiations to another. In shades of 2011, Britain has to set up new trade agreements, and there’s a lot of bad blood in the EU. Five years on, most people remember there were problems in 2011, but few recall the details.
I didn't expect Brexit to pass, but I did expect volatility if I turned out to be wrong, and that's what we are now seeing. The question is whether short-term volatility will extend into something much worse. It certainly could, especially in Britain itself. But for the U.S., the volatility is likely to be much less worrying. For longer-term investors, these declines are not worth fretting about and, in fact, can be buying opportunities.
I suspect that, in a year or two, we will look back and wonder what all the fuss was about. I am quite certain that, five years from now, that will indeed be the case. For most investors, the biggest risk is overreacting to short-term noise.
Keep calm and carry on.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by McMillan.