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The surprise vote by Britons to exit the European Union — nicknamed Brexit — has roiled financial markets across the globe and could have an impact on the retirement and finances of Americans.
Here’s what you can expect:
Stock markets across the globe have taken a dive, concerned that the United Kingdom may be headed now for a recession that in turn will drag down the economies of the rest of Europe and the United States. The U.S. market, which rallied a day ago on expectations that Britain would remain in the European Union, forfeited about 3 percent early Friday based on the S&P 500 index.
More than half of Americans are invested in the stock market, largely through retirement plans at work. And many workers have been encouraged in recent years to diversify their portfolios and invest overseas. These investors will likely see their balances drop — at least for the next few months, experts predict. That’s bad news for retirees and others who must pull money out of the stock market at this time.
Financial firms are advising clients that there is no reason to panic.
Even if Britain eventually pulls out of the European Union, it will be a gradual process that will take at least a couple of years, says Tim Steffen, director of financial planning at Robert W. Baird & Co.
“If it looks like this will have a longer impact on people’s finances, you will have plenty of time to react to it,” he says.
Investment firms have been reaching out to clients with a similar message.
“Given that it may take several years for the specifics of Brexit to play out, and markets may be rattled as plans take shape, investors’ best protection is to hold a portfolio that is diversified across asset classes and regions,” the Vanguard Group wrote to its investors.
Nevertheless, some financial professionals see some positives from the stock sell-off.
“This is a good buying opportunity,” said Greg McBride, chief financial analyst with Bankrate.com. He favors investing in broad-based, low-cost index funds.
“Overall, I would recommend that investors think more about buying than bailing,” said Sam Stovall of S&P Global Market Intelligence in a statement. He sees long-term buying opportunities in mid- and small-cap stocks that have low international exposure as well as high-quality stocks with lower volatility.
Good news if you are shopping for a mortgage now. Interest rates on these loans have dipped slightly on the news of the vote, said Keith Gumbinger, vice president at mortgage research firm HSH.com.
“How far they can go down and stay down is really unclear at this point,” he said.
Investors fleeing stocks are seeking safety in U.S. Treasuries, and the rush of money flowing into these securities pushed their yields lower, Gumbinger explained. Mortgage rates closely track U.S. Treasury yields.