Brexit Panic — Should You Sell Your Stocks?

Panic
studiostoks/Shutterstock.com

Nobody saw it coming.

Britain has voted to leave the European Union, and shock waves are hitting markets worldwide. As I write this, an hour before the U.S. stock market opens, European and Asian markets are down 4 to 10 percent, and the U.S. stock market looks like it will open down by about 3 percent.

The fact that global markets would plunge based on Britain leaving the EU may seem odd to investors here. Why does it matter to us whether Britain stays or goes?

One reason: Britain serves as the de facto European financial headquarters for many U.S. firms, especially banks. Since Britain is not going to be in the EU, U.S. companies will have to find new headquarters, increasing both costs and complications of doing business in Europe.

Another reason is the negative effect the Brexit (short for “British exit” from the EU) will have on the British and European economies. Some experts are predicting a British recession as a result of the Brexit vote, as well as a drag on the entire EU. Since Britain and the EU are huge U.S. trading partners, that could translate to slower sales for some U.S. companies.

There’s also the fear that since Britain has abandoned the EU, other member countries may follow and the entire EU — by some measures the world’s largest combined economy — may ultimately dissolve,

But the primary reason what happens there affects us here is more subtle. It’s simply that with every passing day, the world becomes more interconnected. That’s why our markets have fallen several times over the last several years as Greece, a country with a relatively tiny economy, was stricken with debt problems.

The simple fact is that, like it or not, when markets anywhere sneeze, others are likely to catch a cold.

That explains how we got here. But now for the important question:

What’s an investor to do?

As you read this, our market will most likely be going south, taking at least some of your 401(k) or other nest egg with it. Should you sell?

The short answer, at least if you’ve invested sensibly, is no.

Stock market corrections, whatever their catalyst, are not only common, they’re healthy. And while the cause of this decline was unexpected, the decline itself isn’t. We were overdue for a pullback.

So if you’re investing for the long term, especially in monthly installments in a retirement plan, keep doing so. True, the world is a less optimistic place than it was yesterday. But it’s not coming to an end.

That being said, falling prices are never worry-free. Fear of losing money is something we all have to confront when investing in anything other than an insured bank account. It’s natural to be concerned when the market gets scary, and this is a scary time. Which makes it the perfect time to review our rules to overcoming investing fear.

The 7 golden rules of overcoming fear

From buying a house to skydiving to asking someone out on a date, fear is not your friend. Here are seven universal principles that will help keep it to a minimum:

1. Understand what you’re doing

If you’re going to invest in stocks, invest your time before investing a dime. Talk to someone you know who has more experience. Learn what makes markets, and stocks, move up and down. Studying history will help you understand and predict the future.

So will understanding the rules of the game. And one rule of this game is that stocks will go down as well as up.

There’s an inverse relationship between knowledge and fear. The more you know, the less afraid you’ll be.

2. Understand why you’re doing it

With conviction comes courage.

Investing in the shares of great American companies has historically been a smart thing to do. And investing when others are running for the hills has proved smarter still.

You know that the stock market offers more risk than insured bank accounts, so it follows that if it didn’t return more over time, it wouldn’t exist.

I’m convinced a part of my savings belongs in stocks, even though I’m well-aware of the risks involved.

3. Don’t overdo it

If you want to scare yourself to death when making investments, then try any of the following:

  • Invest money you’ll soon need.
  • Invest more money than makes you comfortable.
  • Put your money in silly, speculative stocks that are more gambling than investing.

Staring at the ceiling at night? This is probably why.

4. Expect some pain

The potential upside of good markets outweighs the potential downside of bad markets. That’s what keeps us in the game.

I have a significant proportion of my net worth in stocks, so I know how it feels when things go south. But the decades I’ve spent as an investor have taught me to expect the bad with the good.

If it were all wine and roses, anybody could do it.

5. Listen to your voice, not everyone else’s

Develop your own voice and listen to it.

People trying to steer you in one direction or the other probably don’t know you as well as they think they do. They may also have personal agendas that don’t align with yours.

6. Consider the risk of not taking risk

Over the 35-plus years that I’ve been investing in stocks, I often stood on the sidelines — too afraid to invest — when market crashes and recessions hit.

By the time the Great Recession hit, I had learned from my mistakes. I invested a chunk of my savings in quality stocks, and also bought a rental house.

Those two decisions increased my net worth by about $200,000.

While there’s always a risk of losing money by investing in stocks, real estate or anything else that changes in value, there’s a greater risk in not doing so. You’re unlikely to retire rich, or even adequately funded, if you earn an average income and are willing to invest only in guaranteed rates of return.

In short, you won’t get a hit from the dugout.

7. Think long term

If you’re trying to invest short-term, you might as well head to Vegas, where you can at least drink free.

When I bought General Electric for less than $10 a share in 2009, I didn’t expect it to go up right away. But because it’s one of the biggest companies on the planet, I knew it wouldn’t go bankrupt, and I assumed that sometime before I died it would come back. In fact, had the market continued to tank and GE continued to fall with it, I was prepared to buy more.

Live like you’re going to die tomorrow, but invest like you’re going to live forever.

About me

I founded Money Talks News in 1991. I’m a CPA and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here. And if you’re not subscribed to our free daily emails, you must be crazy! Subscribe here.

Are you worried about the Brexit? How will the historic vote impact the way you invest? Sound off below or over on our Facebook page.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

How to Stop Living Paycheck to Paycheck in 8 Steps
How to Stop Living Paycheck to Paycheck in 8 Steps

Does it feel like your paycheck is gone the moment you get it? You can break that vicious cycle.

How to Get Rid of 6 Hard-to-Sell Things
How to Get Rid of 6 Hard-to-Sell Things

Find out where to sell, donate or recycle items — and feel good about it.

5 Tax Breaks That Retirees Often Overlook
5 Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Small Appliances You Don’t Need — and What to Use Instead
7 Small Appliances You Don’t Need — and What to Use Instead

Here’s how to get the job done without blowing money — or losing counter space.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less
5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less

In this week’s podcast: tips on retiring overseas — from someone who’s been helping American expats for decades.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

15 Outrageously Overpriced Products — and How to Save on Them
15 Outrageously Overpriced Products — and How to Save on Them

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

Why Half of Retirees Now Owe Taxes on Social Security
Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

11 Disgusting Household Items You Should Toss Already
11 Disgusting Household Items You Should Toss Already

Never keep these items past their prime.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.