Resist Fight-Or-Flight Response in Wake of Brexit Vote

Focus on risk and portfolio allocations, not the noise, says Christine Benz, Morningstar’s director of personal finance in the US. Her advice is equally applicable to UK investors

Christine Benz 24 June, 2016 | 5:28PM
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Britain's vote to leave the European Union sent shock waves through financial markets. The pound plunged, as did the US stock market when their trading floors. On the positive side of the ledger, gold soared as did government bonds in the UK and US.

Such gyrations can spark a "fight or flight" response in investors, a desire to take action of some kind. "Fighters" might be inclined to go bargain-hunting amid the chaos. On Friday morning, for example, I got an email from a friend asking if I thought it was a good time for her to deploy her long-held cash stake into stocks. Other investors view extreme market volatility as an invitation to flee—to retreat to the security of cash until the turmoil blows over. 

Yet extreme market volatility is almost never a good time to take extreme measures with your portfolio—whether aggressive manoeuvers or defensive ones. There's no telling whether the shock of the Brexit vote will mark the nadir for global stock markets in the near term. Thus, while bargain-hunting amid the chaos can be reasonable for investors with long time horizons, such investors are better off being deliberate about it, doing their homework, picking their spots, and putting the money to work over a period of weeks rather than all in one go. Yes, they may leave money on the table if stocks head off to the races after digesting the Brexit news, but I suspect we'll see more dips for stocks between now and year-end. And in any case, it's always better to be an investor than a speculator. 

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About Author

Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.