I love receiving reader questions. In the last couple of days, I?ve received several questions addressing the general instability happening right now, including the recent #Brexit vote.
We are going through a time of turmoil and uncertainty. Here in the United States, a contentious presidential election has many wondering what?s next. We can make predictions left and right, but there?s really no telling what will happen come November. On the other side of the Atlantic, the Brits just shocked pretty much everyone by voting to leave the European Union.
The last few days, my inbox has received several questions that boil down to the following:
With the latest #Brexit vote, and with the uncertainty and turmoil surrounding the U.S. presidential race, what are you doing with your portfolio? Are you worried yet?
Of course, I can only tell you what I?m doing, and what works for me and my portfolio (and my peace of mind). However, perhaps my take on the situation will help you with your own financial decision-making in the coming weeks and months.
What I Did About the #Brexit: Next to Nothing
First of all, a number of readers were interested to know how I handled things when the #Brexit news dropped. Honestly, I was surprised by the result by the referendum. I had been following for months, and I knew it had been too close to call for quite some time, but I didn?t think it would actually happen.
That said, I was up when the official results were announced, and I watched in real-time fascination as the pound plummeted in value. Because I don?t trade Forex, it didn?t really affect me, other than as something that I knew I?d have to write about in my coverage of the currency markets.
Then I went to bed.
I got up the next morning and boarded a tour bus for Banff, Alberta. While on the bus, I checked the available cash in the online discount brokerage where I keep my taxable investment account. I hunted around for some bargains on my favorite dividend stocks, and checked the price of the index ETF that makes up the largest portion of my emergency fund. Things didn?t drop as much as they could have, and I only bought a couple extra shares of a few things that I thought could bulk up my portfolio at a discount.
That?s pretty much how I treat all of these types of panic-inducing events. I don?t sell when the market is in turmoil. Instead, I look for bargains on some of my investments so that I can buy them cheap. I?m still a good 20 to 30 years out from ?retirement? (whatever that means), and even with my taxable accounts for emergencies and travel, I don?t get too bent out of shape. Even if I?m forced to liquidate at a loss, I get a tax deduction. Most of the time, though, selling into a major even like that is a bad idea because you?re just locking in big losses. Even if you don?t buy anything like I do, you can still keep your portfolio intact by doing nothing.
Turmoil in the Months to Come: Probably Still Going to Do Nothing
Now that we?re waiting for the #Brexit situation to shake out, many are thinking about the tumultuous months we are likely to see in the run up to the U.S. presidential election. I hate to sound like a broken record, but the reality is that I probably won?t do anything during this time, either. I?ll be watching for a big movement in the markets following election results, but it still probably won?t prompt any major action on my part.
I will consider when it might make sense for me to sell some of the alternative assets I have. A small portion of my portfolio includes VIX and gold ETFs. These are assets I added for experimentation purposes, and as part of my participation in an investing challenge. I thought about selling VIX during the #Brexit fallout. VIX is interesting because it is tied to measures of market volatility. During times of upheaval VIX gains (it can make a nice hedge if you?re into that sort of thing).
After reviewing the 52-week chart, though, I decided that there is likely to be some more volatility in coming months as the parties hold their conventions and as the presidential race heats up. I bought VIX when it was near its all-time low, so even if things don?t get even more volatile, I will still enjoy a tidy profit. So I?ll sit on it and see how I feel later.
I?m taking the same approach to my gold ETF shares. Gold generally gains in times of uncertainty and turmoil, and the #Brexit chaos was no exception. I?m not really a gold bug, and I?ve been looking for a reason to dump my gold ETF shares for some time. I?m not sure right now is the time; I?m waiting. I did buy during a dip, so even if I don?t get a huge return, it?ll still be one worth having, even if I missed out on the #Brexit issue.
Basically, I?m betting on further turmoil to help me see a chance to do a little profit-taking in the future on my alternative assets, while pretty much keeping my hands off my stock funds. It?s not a sexy approach, and it probably means I?ll miss out on some huge takes. But I?ll sleep just fine at night, and I?ll keep building a portfolio that?s adequate for my needs. I don?t ask for anything more than that.
What are you doing with your investments in light of the #Brexit and likely turmoil moving forward?