3 Key Ways Brexit Affects Americans
12 July 2016
The United Kingdom's narrowly approved decision to "Brexit" the European Union created shockwaves throughout the world as financial markets reacted negatively to the potential fallout of this historic event. This impassioned display of democracy by the British people may or may not be upheld in the weeks and months to come amidst protest and debate in the aftermath of Brexit intensifies. However, in the interim, the world waits and watches for signals as to what the long term ramifications of Britain's decision will create.
This leads to the question, "Will the financial ripple-effect of Brexit have a lasting influence on the lives of Americans?"
The answer to that question is a resounding 'YES' - some positive and some concerning.
(1) America Shows ResolveAs the UK starts its path to finding its national identity and independent place in the global market, on the other side of the Atlantic, the United States financial markets have shown resolve - if not an outright defiance against the uncertainty created by Brexit. The United States financial market has become a lighthouse for foreign and domestic investors in the proverbial 'sea' of uncertainty. Leading market indicators, the Dow Industrial, S&P 500, and Nasdaq, have all surpassed their pre-Brexit numbers and have currently been fueled by surprisingly better than expected jobs numbers. Industrial, transportation, top established companies, and tech stocks have been the main beneficiaries of investor fervor and United States financial market surge.
Regardless of Brexit and other factors that would seem to perpetually threaten the United States, like questions about China's economic standing, the introduction of negative interest rates in the Eurozone, Sweden, Switzerland, Denmark and Japan, and over $10 Trillion in global bonds showing negative yields - America goes on, weathering the complexities of global financial uncertainties.
(2) Mortgage Rates on the DeclineAfter the Federal Reserve raised interest rates this past December 2015, after nearly a decade, it was believed to be the start of a systemic rise in interest rates. The Fed had originally implied that four more rate hikes might occur in 2016.
However, in recent weeks, mortgage rates have done the reverse and sunk to their lowest levels, in part due to preparation of a potential Brexit by Britain from the European Union. This lower cost of borrowing has influenced many property owners to seek refinances, while increasing the buying power of would-be real estate purchasers. One year ago, the average 30-year conventional mortgage was averaging above 4%. Freddie Mac has reported that same 30-year rate to be in the mid 3s.
The Federal Reserve has since backed away from their stance of raising interest rates and instead has opted to remain steady as it evaluates a weakened global economy.
From the standpoint of Americans, the period of low rates and lower cost of borrowing should continue to drive spending and a positive outlook for the future.
(3) Possible Losses in Retirement InvestmentsFor those who are younger and have a decent runway to retirement, an extended period of global uncertainty, even if it lasts several years, isn't overly concerning. For those in retirement or nearing retirement, this type of market can be unsettling as the prospect of continued financial turmoil, like Brexit, can create significant swings in retirement savings. Investors who took major losses in during the Great Recession are just starting to see their next eggs recover. This has led some to opt for more conservative cash based portfolios, that pay little to no returns, rather than staying exposed to market fluctuations.
These older investors, many of whom are already retired, are clamoring for safer assets. Traditionally, this has meant bonds or 10-Year Treasuries, but today those, too, are marred by market volatility.
Alternative Finance Options for those Retired and Soon-to-Be Retirees
While having historically low interest rates is good news for home buyers and those looking to refinance their property, it is not a welcomed scenario for those who want less risk in their portfolio and are concerned about maintaining a solid source of income into their retirement years.
This has many investors turning to alternative investments, non-traditional products, many of which work counter-cyclically to the market.
To better demonstrate how an allocation to alternatives could benefit a portfolio, look no further than Woodbridge Wealth's pre-settlement funds. Invested in lawsuit awards, these funds recently closed with the return of all principal in addition to a hearty 12% yield over a five-year period. These returns were generated despite the country's economic ills.
What next after Brexit?Brexit and its far reaching implications will continue to contribute to the growing uncertainty in the global economy. In the end, the fear of possible outcomes might prove to be more concerning than the actual effects. Nevertheless, American's can expect to do as they have always done - remain strong, persevere, innovate, grow and find alternative ways to remain a global leader.
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