Risky Investments Begin to Show Losses in Wake of Brexit

The Bexit vote in Britain appears to be exposing fault lines across various investments.  The Wall Street Journal reported today that emerging market currencies are taking on steep losses a day after Britain voted to leave the European Union, termed Brexit.  According to the article, this comes as the British Pound dropped to a thirty year low and Standard & Poor’s downgraded the U.K. down from Triple-A status.

Other investments are also showing strain, including oil, and foreign companies, including European banks.  These investments are often packaged into products such as exchange traded funds or limited partnerships, which are generally considered risky and not suitable for certain investors.

For instance, we have commented in recent blog posts that oil and gas limited partnerships are not appropriate for investors that cannot afford to have a significant portion of their portfolio locked up in such an illiquid investment that generally pays high commissions to the brokers who recommend them.

Likewise, trading in currencies and other commodities in general is generally considered to be very risky.  Often, products such as inverse and leveraged exchange traded funds (ETFs) and exchange traded notes (ETNs) that appear to provide an inexpensive way to trade in currencies are actually highly complex securities products that are generally only for sophisticated investors interested in intra-day trading.  Other ETFs that track markets such as the S&P 500 or emerging market indexes may be declining because the indexes themselves are declining (as of this writing, the S&P 500 has dropped nearing 900 points from less than a week ago).

If your broker recommended any of these investments to you, that they provide a fair and balanced view of the investments, and properly explain all pros and cons with the security, including the relevant risks involved in the investment.  Additionally, the broker may only recommend investments that are suitable for you, given your specific age, investment experience and relative risk tolerance, among other things.