It appears the best way to describe the “Brexit” fallout after the historic vote, in which Britain chose to leave the European Union, is with the decidedly English phrase, “Tempest in a teapot.”
While short-term effects will undoubtedly be felt, including within 401(k) accounts, general consensus is that rebounds will be quick and long-term markets strong.
Advice from Brexit watchers, whether for institutional or retail 401(k) investors, is to stay the course throughout the storm, however small it might be.
“Britain exiting the European Union has sparked a range of responses, many apocalyptic in their delivery, but the asset management industry has proved encouragingly sanguine in the face of the doom-mongers,” according to Boston-based research powerhouse Cerulli Associates, when commenting on the institutional impact.
Indeed, in a poll of asset managers conducted a few weeks before the referendum, 46 percent said Britain leaving the EU would have no impact on the ability of managers to sell funds across Europe. Others foresee problems, but for the majority, these problems are “short-term in nature,” according to the firm.
For individual 401(k) participants, Seix Investment Advisors’ Jim Keegan sees it as an opportunity.
“Markets will react negatively for a brief period of time and central banks will make it clear that they are backstopping any liquidity and/or market instabilities, so it might be a buying opportunity for any assets that cheapen-up,” Keegan, the firm’s chief investment officer, told The Wall Street Journal.
When asked specifically whether or not Britain leaving the EU would have any real effect on 401(k) balances, Keegan said it would not, as it is mainly a European issue, and it’s “effectively the beginning of the end of the union.”
“As far as it relates to individuals and their portfolios, I would say Brexit is a lot of noise and [they] shouldn’t make any adjustments.”
Even lefty news and opinion site The Huffington Post, while solidly in the “remain” camp, said to stay put with 401(k)s strategies. After rhetorically asking what should be done, the site advised the following:
“The answer is simple: Nothing. If you can help yourself, don’t check to see if your 401(k) is down. (Spoiler: It is.) If you do check your balance, don’t panic and hit sell. The best thing to do is exactly what you were doing before. If you were planning on increasing how much you save, do it. If you weren’t, don’t suddenly decide to save more because you think you can pick the low point of the market.”
In a strong illustration of behavioral economics, concerns over England’s exit appear to be having more of an impact than the exit itself. Last week, Morningstar reported that fears across the pond have fixed income funds flying high.
Research behemoth Morningstar reported U.S. mutual fund and exchange-traded fund (ETF) asset flows for May. Investors continued to allocate money to fixed income, with taxable- and municipal-bond funds attracting $15.4 billion and $8.2 billion, respectively.
International-equity funds sustained outflows across the board, active and passive, prompted by concerns over Brexit, according to the Chicago-based firm.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
