Britain’s intended exit from the European Union, called Brexit, opens a world of possibility and uncertainty, though it is the uncertainty that is currently at the forefront of discussion. Anxiety abounds about the impact on Great Britain’s economy and the future of the European Union. Nobody can say with certainty what the outcome will be, and investors are reacting to that insecurity. Statistically speaking, however, abandoning European stocks now is likely to be a mistake.
A little background
In late March, I wrote a column on the case for owning international stocks. Though my timing may not have been the greatest, since then, a total international stock index fund is actually up 1.5 percent through the end of June. That said, markets haven’t been so kind to European stocks: Specifically, a European index fund lost 13.6 percent in the two trading days after the surprising Brexit vote, though it recovered part of that loss over the next few days. I’ll admit, my urge to bail out of European stocks is pretty high at the moment, so I’m not surprised to hear people express their desire to do just that.
Why I’m staying the course
This isn’t the first time I’ve been to this dance. In 2012, with the Greek default looming, I was hearing the very same anxiety from colleagues and clients alike. They were OK with the rest of the world but wanted out of Europe. Back then, I wrote a column on the case for European stocks. Yet for that year, Europe was the top-performing part of the world, and, to the amazement of many, Greece was the top-performing country.
Like today, it’s not that I knew the future; it’s just that I knew three things:
- Contrary to expectations, countries with slower-growing economies often have the fastest-growing stock markets.
- Selling after a decline is every bit as dumb (and human) as buying after a surge.
- The bad news has already been priced into the market.
So in the wake of all this post-Brexit volatility, I’m holding tight and owning my European stocks via a broad total international stock index fund. My Vanguard Total International Stock Index Fund (VXUS) has over 45 percent of its assets in European stocks, with Great Britain representing, by far, the largest single European country.
Could I be wrong this time? Absolutely. But if I am and it goes down further, I’ll buy some more. I’m sticking to my strategy of owning the world and betting on global capitalism. New paradigms can be costly.
Allan Roth is the founder of Wealth Logic, an hourly based financial planning firm in Colorado Springs, Colo. He has taught investing and finance at universities and written for Money magazine, the Wall Street Journal and others. His contributions aren't meant to convey specific investment advice.