After the United Kingdom voted to leave the European Union, the Dow Jones Industrial Average fell 610 points last Friday and 260 points on Monday. However, U.S. equities markets have since recovered and are now only down slightly from where they were last Thursday (before the Brexit vote). The S&P 500 actually experienced it’s best weekly gains since November of 2015. Overall, the S&P 500 finished the month of June on a positive note, gaining 0.26 percent for the month. Obviously these gains are attributable to the reversal of the sell-off that occurred last Friday, but the recovery was certainly welcomed by global investors. As we mentioned in our commentary last Friday, we expected financial markets to bounce back after the initial “panic selling” subsided and investors focused on the facts. The facts remain that although the UK citizens voted to leave the EU, this will be a very long process and lawmakers in the EU and UK have years to renegotiate trade deals. Perhaps the most worrisome piece of the Brexit vote was the fear of contagion, with the potential for other countries to follow suit and the long term existence of the EU was being questioned. However, as “cooler heads” began to prevail most investors do not see contagion as an imminent threat and believe the UK’s situation was somewhat unique and not likely to be repeated by any other nations at this point.
We are constantly reminding investors that short term volatility will always persist and trying to outguess these market environments can be a very tricky proposition. Investors that succumbed to the overblown fears last Friday or even this Monday and actually liquidated their long positions are surely regretting that emotional move now as markets have effectively fully recouped their losses.
Some of the more volatile time periods still rewarded investors that stayed discipline and did not sell based on fear. While there is always going to be some event that will cause short-term pain, long-term investors that stay the course were better off years later. That is not to say that buy and hold is always the answer; there is certainly a case for portfolio rebalancing and certain asset rotation. However, selling just because of fear is nearly always a bad idea, and the recovery we are seeing this week is a perfect example of why.
Mid-Year Financial Checkup:
We are midway through 2016 already, so now is a good time to review if you are on track to meet your goals for the year. A few reminders to consider:
- Confirm that you are taking advantage of any employer match in retirement plans through work. If you want to maximize contributions to these plans, you can contribute $18,000 per year to defined contribution plans such as a 401(k), and those over the age of 50 can add an additional $6,000 per year. If you do not have a retirement plan available, consider contributing to a traditional IRA or a Roth IRA. The maximum amount one can contribute to an IRA account is $5,500 per year and those over 50 can contribute an additional $1,000.
- Consider donating items to charitable organizations during the summer. Instead of waiting until late in the year, make donations now and make sure to keep good records.
- If you received a significant refund on your 2015 taxes and expect the same again for 2016, consider reducing your withholdings to minimize the amount of a refund. This is a way to give yourself a “raise” on your paychecks. This also reduces your risk of being delayed receipt of your refund if your tax identity is compromised.
- Harvest any capital losses you may have available in your investment accounts. This helps reduce your realized capital gains, and could potentially offset some ordinary income as well. Any unused losses can be carried forward to subsequent years.
- Look to rebalance investment accounts if necessary. With the recent market volatility in the past week, rebalancing your portfolio helps add to asset classes (or sectors) that may have sold off more than others.
- Update passwords as it is becoming increasingly common for criminals to hack into accounts.
This publication is provided as a service to our clients and associates of PFA solely for their own use and information. The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified. The content in this publication is for general information only and not intended to serve as individual investment advice. You should seek independent advice from a professional based on your individual circumstances.