The world over is talking about the British exit and I feel compelled to express my woes. It’s official, the UK voted to break up from the EU. A wise friend once told me that in a breakup, the one who decides to leave first wins; they’re emotionally prepared and very likely already have their exit strategy planned out.
So what does this all mean? Does Britain win and the rest of the EU lose? And when the rest of the EU loses, then economically do the rest of us lose too? What is Britain’s exit strategy? How long will this take?
We all have many questions, most of which will take years to answer. The big thing is the uncertainty that comes with all this. The best play is to be defensive. Maybe wait until the markets settle down over the next week or so. In the meantime, look at other investment opportunities. Look for stocks that barely reacted to the news. Did their sectors do the same? If the market moves sideways or goes up, you can take your position. If the market goes down, just be ready for when there is a reversal. If your choices display alpha behaviour in that it does not care what the markets are doing and wants to advance on their own, I say consider going for it, maybe just take fewer shares than you normally would to reduce your risk. The macroeconomic conditions have now changed and makes anything you invest in riskier.
There’s always risk in investing; sometimes there is wisdom in the strategy of sitting on your hands until economic uncertainty and market volatility cool off. Sitting on your hands for too long and not being pro-active in the interim poses another kind of risk: the risk of doing nothing and taking action when it’s too late. The best opportunities occur in the places where you anticipate the start of change, the beginning of a potential shift in trends. Watch the world markets, observe the different sectors and industries, wait for currencies to stop falling, and look for promising changes in employment and housing.
Keep your eye on the EU, and if there is instability for a while, look for signs of recovery. My only hope is that the EU has a plan in place to deal with the exit of a major member. I will now join my newborn niece and weep over this major breakup.
This week I had the honour of meeting my MP, Kim Rudd. She is a fascinating woman; you could write an entire book about her inspiring tenacity alone. She’s a true community leader, a successful entrepreneur, and a genuine, cool lady. She had been told about my book, Loonie to Toonie, and wanted me to meet with her in person to talk about it.
While in that meeting, I received some great tips on how to promote the book. I also got to participate in an open discussion of the challenges many Canadians face from not having their finances under control. This is a big problem that stretches across all the generations. The main question that came up was: Why don’t we all know more about money? There were many answers to that question. The solutions are simple, but not easy. My book is my own way of seeking an answer to that question, but it’s only one solution. I have no control over what people take away from my book. I can only hope to empower people with knowledge. But is that enough to transform a culture from spending to investing?
Imagine going to the mall and there was a store that sold all sorts of investments. Whatever you bought, you left the store with more money. How popular would that store be? I think we would all go to that store first before spending our money anywhere else. We would know all the features to investments like we would for the latest smartphone or pair of Jimmy Choo shoes.
The reality is, investing doesn’t offer the same instant feedback we get when we actually purchase an item. There’s a wait time for the payoff which sometimes take years. This means that we don’t have many chances to make corrections if an investment doesn’t work out. In general, the longer we have to wait for something, the more antsy and uncertain we feel about it. Then add to the length of time the element of risk, which is the uncertainty of the investment’s outcome. If an investment doesn’t work out like you expected it to, you can’t refund it or get all your money back. Thankfully investing doesn’t have to look like a scary game of risk, thanks to the strategy of diversification, which is having different financial assets of various risk levels. Similar to having a closet of clothes for different occasions, your savings should be comprised of different kinds of investments for various stages and goals of your life.
So how do we enhance our relationship with money? Divide your pay cheque up like this: bills, food, future goals, then the rest for fun. This way, you take care of your basic necessities now, your needs for the future, and you can still enjoy some instant gratification for your hard-earned money.
If you haven’t done so yet, go to your bank and just ask to speak with a financial advisor about what you can do about your future goals. Advisors are always friendly, helpful, informative, and they’re there to make the processes easy for you. Whenever I go to the bank, I look for reasons to chat with the advisors. Sometimes I’ll ask a question and suddenly there’s a bunch of us standing around the reception area chatting and sharing ideas. They always tell me of the different options available and they give me new things to consider. I recognize that I’m not shy to talk about financial stuff, but that comes with being empowered with knowledge, even if it’s just some knowledge. No matter how much or how little you know, these advisors are always there to help.
This week, the global markets finished in neutral / positive territory, still above the losses that began in January. On Wednesday, the “Feds” (the FOMC – Federal Open Market Committee – of the U.S. Federal Reserve who make decisions that affect their economy and markets) announced that they don’t expect to be increasing their interest rates as they previously thought they would. Lower lending rates encourage borrowing and spending to stimulate the economy. This makes the stock market go up because people anticipate further growth in business. This reaction could be temporary. If the oil sector’s recent rebound is short-lived, another plunge in oil could still take us all down. I’m not saying this will happen, it’s just something to keep in mind. All the major global economies are doing many things to boost and stimulate their economies–this could also mean these economies are on the weak side and need to experience actual growth.
Does my cautious sentiment mean not to invest? No. Whether the stock market is strong, the economy is weakening, or if we’re in a recession, there are always investment opportunities. This is why I try to be aware of my other options so that I can strike when the time is right. At the moment, I’m still waiting for a chance to get into the metals (see last week’s write-up on precious metals). I’m also thinking of getting a bond fund that’ll pay me interest for the very, very long term.