Brexit, Smexit, Who Even Cares?

The European Union & The Brexit

    You may have heard on the news lately that the United Kingdom (UK) was planning on leaving the European Union (EU). Many people in the UK have been disgruntled with the EU and finally, after a conservative party win in an election, a referendum was held to finally decide—  leave or stay.

    You may be wondering what the EU and Brexit are, or maybe even what the United Kingdom is. Surprisingly enough, you aren't the only one. After polls closed and the results showed in favor of leaving the EU, the people of the U.K. took to google to ask a few "solid" questions such as: "What's the EU?", "What is Brexit?", and "What happens if we leave the EU?".

    So, who even cares? Well for starters, Europe does—and so does the United Kingdom—but you should too. Before we delve into why you should, let’s take a look at some background information on the European Union and the Brexit.

    The EU started as the European Economic Community in 1957 with the "Treaty of Rome", involving Belgium, France, Italy, Luxembourg, Netherlands, and West Germany. It was created out of a sickness European leaders had for the constant warring that had been plaguing Europe for

Current EU Countries

centuries culminating in World War II. In many ways, the impact of it was felt greatest with the economic ties that were created and the resulting free trade that was initiated between the participating countries. Since then, several other treaties have been signed like the Manstricht (creating the euro and economic rules) and Schengen (allowing free travel between countries) and 22 other European countries have become members with many more to follow.

    Brexit, is the exit of the UK from the EU. There are a multitude of reasons why the UK wants to distance itself from the EU—EU immigrants are taking UK jobs (and welfare benefits), "unsecured borders", high costs of membership, and the difficulty of trading with non-EU members.

    How will this affect the U.S.? Realistically, I don't foresee a recession like  ‘07 happening, so we can all calm down a bit.

    However, if you really want something to worry about, consider this: If the EU and the UK can't negotiate on some sort of exit that doesn't completely ruin trade relationships, then we might have a problem. If we pretended that the EU was one giant country, it would be the world's largest economy

EU Flag

with a GDP of $16-19 trillion.  The UK is the second largest country in the EU and 6th largest in the world at almost $3 Trillion GDP. Meanwhile, the U.S. is in the Top 5 of exporting and importing partners with the UK. The Brexit might actually help their trading relationship with the U.S. or China since they won't be bound by EU rules anymore. However, if you look at who makes up the majority of their exporting and importing partnerships, you’ll find that they are EU countries. This will undoubtedly hurt both economies because of the loss of trade agreements once the UK officially leaves the EU. There will be a negative impact on the price of goods, job creation, and financial markets.

    While we are not dependent on the UK or the EU by any means, we are a large part of the exporting and importing trade for both of them. This could be a potential drag on U.S. financial markets or to any businesses with large ties to the European economy. The most likely scenario for now is that you will see a roller coaster pattern forming out of your retirement account values. Markets will crash for a day or two and then go back up when people's’ fears subside. This will likely continue to happen as small details continue to emerge about the ramifications of the UK leaving the EU.

    Who is it bad for? People nearing retirement age. Usually massive market fluctuations are a drain on the nerves of those about to retire since some of their assets may be adversely affected. However, if your retirement portfolio was managed correctly, most of your current assets should be relatively protected from this period of uncertainty.

    Who is this good for? Specifically, for young people just entering the investing world. But, it could be a great opportunity for anyone with cash that can be invested. The fluctuations in the market

Brexit Referendum Results

should end up giving you a chance to purchase great companies at a significant discount. For example, I recently acquired stock in Toyota Motor Company (TM) for a 5% discount. However, you need to enter this type of market atmosphere having done your due diligence. The only reason I purchased TM was because I had done a few months of research before the purchase, but was merely waiting on a good time to pull the trigger. Little did I know the next day TM would drop another 5%. It can be a bit nerve wrecking at times, but remember that purchasing good companies at great prices will more than likely result in profit, just have patience.

    Depending on how the United Kingdom decides to deal with their exit from the EU and vice versa we may have a few exciting years in front of us. This will not be done anytime soon and there are even rumors that it may not even happen. I would take this period to look at where you stand financially and possibly get some advice from others that may be going through the same type of scenario. It could potentially help you immensely with your future financial standing!