When it comes to deeply held beliefs around issues of representation, traditions and the protection of local institutions, people rarely vote their well-reasoned economic interests. To quote David Hume, the 18^th century Scottish philosopher, "Reason is and ought only to be the slave of passions."

In a nail biting 51.9 to 48.1 percent decision last week, Britain voted to leave the European Union and to reestablish the sovereignty of the United Kingdom. The markets had anticipated that economic interests would trump other factors so the decision to leave was a shock. Last Friday, the day after the votes were cast, the global economic markets saw notable movements: An 11 percent decline in the British pound—its largest one-day drop and its lowest level in 30 years; a more than 600-point drop in the Dow Jones Industrial Average; gold surging 5 percent and the 10-year U.S. Treasury dropping to as low as 1.40 percent.

This is the initial and gut reaction to an unexpected outcome. But what does the vote really mean and what are the outcome's implications?

From the U.S. perspective, the U.K.'s decision to leave the European Union should have a modestly negative impact to U.S. GDP. Yet given the bout of global macro volatility, the Federal Reserve will likely remain on hold for most of 2016 if not longer. In the grand scheme of things, the vote to leave the European Union has unleashed a process that will take years to unfold. It would take a minimum of two years for the U.K. to leave the European Union. Indeed, nothing at all will change until at least October. At that time, a new British government will likely be formed, and the long process of renegotiating a wide number of issues ranging from trade relationships, tariffs and freedom of movement will begin.

In terms of how we at Badgley are invested, we continue to focus on owning a well-diversified portfolio of high-quality companies, not only in stocks but also in bonds. While it is hard to be excited about the opportunities in the fixed income market, last week’s reaction serves as an important reminder of the role bonds play in overall portfolio diversification since they are both negatively correlated to stocks and have low volatility. At the end of last week, prices for high-quality bonds were rising significantly, helping to offset some of the losses in the equity market. Just as important, earlier this year, we reduced the weighting of European companies within our International Equity Strategy.

When events unfold as they have with Brexit, it's natural to be concerned and have questions. That said, we believe that the long-term repercussions are likely to be less economic than political.