With everything the media has been saying about Brexit being the end of the world, you would expect the markets to have pretty well tanked over the past week. Well, at least so far, you’d be wrong. The markets certainly didn’t seem to like that the UK voted to leave the EU, and they did drop significantly when the result became clear, but they have recovered incredibly quickly.
As of Thursday’s close, the FTSE 100 Index, which tracks the UK stock market, was up a little less than 5% from last Friday’s open (the vote was June 23, last Thursday, so Friday was the first trading day after the vote). The S&P 500 Index was up almost 1% over the same period. And the past couple of days have been some the best days of the year for the S&P 500. Since the beginning of the year, there have been 125 trading days. Tuesday and Wednesday were the fifth and sixth best days of the year so far, respectively. And Thursday was the 14th best day. I don’t think that many people actually think that the Brexit results were good for the economy. It’s just that the news isn’t as bad as many people expected it to be.
As the whole situation plays out, we’ll probably see more day-to-day volatility in the market, but that doesn’t always translate into something long-term investors need to worry about though[( scroll down to the section labeled “Short Term Randomness”). Unfortunately, we don’t know which way the market is going to move. Trying to time the market just doesn’t work. Not only do you need to be able to guess when to get out of the market, you need to be able to decide when to get back in. It doesn’t do you any good to cement your losses by getting out of the market, and then miss the rebound—which is often pretty dramatic, and pretty quick.
What you want to focus on is building your portfolio around the things that actually matter. You want a low-cost, well-diversified portfolio that takes an appropriate amount of risk for your situation. For more on how to have a better investment experience, take a look at our ebook Pursuing a Better Investment Experience.
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