Brexit is one of those terms that you may have heard at the last dinner party. We think we understand what’s going on, but do we? It’s like Bitcoin or a New Yorker cartoon; we know it means something, we’re just not actually sure what. Brexit is a favorite topic of political and financial pundits, most of whom are just looking for something to say to justify their 3 minutes of airtime. This blog post seeks to shed some light on where we are in the current state of Brexit, what the possible outcomes might be and what can we do in our portfolios to weather the potential storm.
Let’s recap where we stand now and work our way backwards. At the time of writing this post, after more than two years of intense debate, Theresa May’s Brexit deal has been shot down for a 3rd time. Because no agreement has been made, the UK will leave the EU on April 12 without a deal if the EU does not offer an extension. Cleverly, this has been dubbed a “No-Deal Brexit”. Parliament is currently feverishly working to agree upon a Brexit deal this week before an EU summit that will make a decision on May’s request for an extension.
So, what is everyone’s problem with Theresa May’s deal to leave the EU?
The “Leavers” feel that the deal keeps the UK too closely knit to the EU. On the other hand, the “Remainers” feel that the new agreement would be worse than their membership terms. Kind of like leaving Comcast for Verizon. Another issue of contention deals with the “Irish Backstop”. The problem here is how to handle the border between the UK territory of Northern Ireland and the Republic of Ireland, which is a member of the EU. All sides agree that a hard border should not be put in place between the two island territories, however, a solution has yet to be decided on.
Hey, who started this fire after all?
All of this debate began after a referendum vote on June 23rd 2016. That referendum asked the UK electorate whether or not the country should remain a member of the EU. This vote obviously didn’t materialize out of thin air, but the situation that lead to the referendum is a bit complex for the scope of this blog post. The vote ended with 51.9% of votes in favor of leaving the EU. While this vote wasn’t legally binding, the UK government promised to implement the outcome. The outcome in this case was to invoke Article 50 of the Treaty of the European Union which allotted for a two-year deadline on the divorce with one of its members. That two years ended at the end of March, 2019.
As Axel Rose once pondered, “where do we go now”?
I could endlessly speculate on the implications of the different Brexit outcomes but my crystal ball is in the shop and broad strokes will be much more helpful anyhow. This whole Brexit mess can essentially go in three directions.
1) Parliament finally gets together and comes up with an agreement that everyone can live with. This outcome would lead to some salty politicians on all sides of the debate but we would at least begin to start climbing out of the pit of uncertainty. 2) Parliament decides that they, in fact, can’t get together and come up with an agreement that everyone can at least live with. The UK leaves the EU without a deal and back to the bottom of the uncertainty pit we go. 3) Parliament decides that leaving the EU without a deal would be too disruptive and brings the issue to a second referendum vote with, hopefully, a bit more detail on the nature of the UK’s exit from the EU. Oh good, more uncertainty.
Ok, that’s all well and good. Now what’s in it for me?
We’ve talked referendums, no-deals, treaties and Irish back stops but I’m sure you’re wondering how this all relates to you and your portfolio. Well you can start by doing a deep dive and analyzing your portfolios exposure to the pound sterling. The good news is, unless you’re the heir to the Twining’s Tea fortune, you probably aren’t loaded up on the sterling.
The absolute most important thing to do if you’re worried about the impact of Brexit on your portfolio is to confirm that you are properly diversified. In fact, even if you aren’t worried about the impact of Brexit on your portfolio you should also be properly diversified. There’s always a catastrophe lurking around some dark corner. Brexit, tariffs with China, trade deals in North America, showdowns with North Korea; there’s always something! No one can accurately predict the outcome of any one of these uncertainties let alone all of them. Your only hope is diversification. Keep in mind, there’s no one size fits all here. The specifics of how you are diversified depends entirely on the needs of you and your family.
This is where a trusted financial advisor comes in. It’s important that your portfolio isn’t overly concentrated in any single area and an advisor can help you make the decisions that will help you reach your goals and stay on the path to a successful financial future.
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