Following the referendum — commonly referred to as ‘Brexit’ — the global stock markets fell by roughly 5% over two dramatic days, and then recovered all of those losses as cooler heads prevailed over the next 3 days. In our view this brings two things into focus: First, the UK and Europe face a long road of negotiations and uncertainty around this historic decision by UK voters. Second, an important reminder that investors and the broad market will always be faced with some type of newsworthy crisis, usually overreacting at first, and the best course of action is to stay invested in good companies for long-term growth. As we said in our initial note, keep calm and carry on.
Decade after decade over the last hundred years we experienced what is now often referred to as a “normalized interest rate environment” offering a real return (beyond inflation) with very little risk of principal. You may have taken for granted at the time that cash in a money market “should” earn 3% – or even 4% to 5% – because in the thirty years leading up to the mid-2000’s, it generally did.