The word "Brexit" is showing up in more headlines these days, as the United Kingdom heads into its final week before its citizens vote on whether or not they want to remain in the European Union.
"Brexit is more of a financial services even than it is a consumer event," said Mitchell Goldberg, president of ClientFirst Strategy, although he said that's not to dismiss the likelihood that ordinary investors' retirement portfolios could be in for a bumpy ride in the near term.
"Global growth is pretty weak as it is — there's not much wiggle room for interruptions," he said. "The only thing the average investor can do is wait it out."
Given that a Brexit would be uncharted financial territory, most experts think it's inevitable that markets would be volatile in the short term, while longer-term economic ramifications could take weeks or months to be clear.
"We really don't know the consequences of what may or may not happen if they do elect to pull out of the European Union," said Peter Cardillo, chief market economist at First Standard Financial. "It's very possible Great Britain might wind up in a recession."
If a Brexit did trigger a domino reaction that led to slow or even negative economic growth, the global nature of business today means that U.S. markets could be affected. A sustained downturn could put a squeeze on investors nearing or already in retirement.
"If you're cautious, this is not a bad time to have a little extra cash in your portfolio depending on your risk tolerance," Goldberg said. With low interest rates making returns on safe havens minimal, people have invested more into dividend-paying stocks.
"People think stocks that pay dividends are bond-like, but that's not true," he said. "These are still stocks, they still take a hit."
Americans still would have some measure of insulation. A marked move up or down for the British pound could make British imports and travel either cheaper or more expensive than before, depending on which way the currency moves, but on balance, the brunt of any financial fallout will be borne by British and European consumers, Lindsey Piegza, chief economist at Stifel Fixed Income, said in an email.
"However, the secondary or tertiary impact could trickle down to the average American mostly through financial and global market volatility," she added.
The bigger question is what happens if a Brexit slams the brakes on the British economy.
One mitigating factor is that, unlike Greece or Germany, Great Britain retained its own currency when it joined the E.U. While it's certainly possible that the pound could drop in the wake of a Brexit, which would cause its own issues, those wouldn't be as destabilizing as a departure that included exiting the Continent's common currency, as well.
"Even more of a pressing issue is who would be next," Cardillo said. A "me, too" response from other, less financially healthy Eurozone members seeking to go their own way would almost certainly be bad news. "That would create a real atmosphere of negativity and that could certainly weigh on global growth," he said.
In this case, our domestic economy also would be at risk. A prolonged market slump could see more investors moving money into "safe havens" investments, which would mean a likely strengthening of the U.S. dollar. This has benefits, but it also puts American jobs at risk if our exports become too expensive for trading partners to buy.
"A strong dollar is good, but too strong in a weak economy could impact exports and it could cause a real shift in corporate earnings, in multinational corporations feeling the pinch, and that would obviously be negative for the stock market," Cardillo said.
"Currencies affect commodities and trade, that's why it's a big deal to investors," Goldberg said. He added that the ripple effects could throw cold water on a red-hot British real estate market. Depending on how exposed U.S. banks were to any subsequent losses, credit availability here could drop, as well, meaning small businesses wouldn't be able to get loans to grow.
"This is going to really hurt small midsized private businesses as far as access to credit," Goldberg said. "It could hurt consumers because if their boss has less access to credit, that can affect hiring."
Piegza pointed out, though, that a parallel effect would likely be lower interest rates, which could be a silver lining for some consumers.
"Market volatility could force the Fed to remain on the sideline until cooler heads prevail," she said. "So here at home, rates could stay lower for longer."