Brexit Brings Investment Opportunities
For investors in the US, a few savvy moves can translate into increased investment income.
The Brexit is spooking some people but savvy investors are taking advantage of it. Here’s how.
Rebalance: Buy more European equities if you own too few.
Rebalance if your portfolio has gotten substantially out of whack because of the Brexit or any other reason.
If you have too little invested in Europe and the United Kingdom, it’s a great opportunity to invest more while prices are down.
My advice is unchanged. Invest about 15% of your equity portfolio in Europe, with exposure to both the UK and the rest of Western Europe. That’s an underweight position compared to Europe’s share of global capitalization. I underweight because I’m concerned about the region’s long-term economic struggles and political gridlock.
However, there are many strong global companies based in Europe, so it still makes sense to have a significant stake in them. Companies like Nestle, Royal Dutch Shell, and GlaxoSmithKline are titans with worldwide operations.
I recommend investing in large-cap European stocks through low-cost index funds such as the Vanguard European Stock Index Fund.
Sell losing investments to cut your income tax bill.
The Brexit has caused some investments to tank in the short term. If you have a loss on an investment, you can sell it and offset any 2016 capital gains dollar for dollar. If you don’t have offsetting gains, you can deduct up to $3,000 of capital losses per year.
Don’t buy back the same investment within 30 days; a wash sale will invalidate the tax loss. Avoid that problem by reinvesting the proceeds of the sale in a similar but not identical investment. For instance, you can sell one European ETF or mutual fund for a loss and immediately buy a different European fund.
Stay calm: The Brexit may be good for both the UK and the EU—and won’t harm the US.
Don’t get spooked by volatile markets. There are grounds for optimism about the UK and European economies and stock markets. There won’t be mass defections of talent or wealth from Britain. New trade agreements will be negotiated, and cooler heads will prevail. It’s not in the remaining EU countries’ interest to punish the UK. That the UK never adopted the Euro makes the Brexit less daunting.
Additionally, the UK’s adios to the EU may inspire that body to work harder to solve its problems so that other members won’t look for the exit.
Nor is it likely that the Brexit will impact US companies much. Exports to the UK were less than 4 percent of U.S. exports last year, and companies in the S&P 500 index earn less than 3 percent of their revenues in the UK. Unless there is a political contagion effect, which is unlikely, the UK vote should not have an impact on the daily lives of Americans.
Paul Jacobs, Certified Financial Planner (CFP), is chief investment officer of Palisades Hudson Financial Group, based in its Atlanta office. Palisades Hudson Financial Group is a fee-only financial planning firm and investment manager based in Scarsdale, NY, with more than $1.1 billion under management. Branch offices are in Atlanta; Austin, TX; Fort Lauderdale, FL; and Portland, OR. Read Palisades Hudson’s daily column on personal finance, economics and other topics at http://palisadeshudson.com/insights/current-commentary. Twitter: @palisadeshudson.