In case you have missed the headlines, news reports and live crosses to experts, the world’s markets and media financial pages have been consumed by a single issue in recent weeks – the stand-off between Greece and its lenders.
For investors everywhere, both of the large institutional kind and individual participants, the story is being told as BIG NEWS. But is it?
Firstly, a quick recap. Greece, like many nations, borrows money. It agrees to pay interest on the loan and to repay the loans on an agreed date. Usually when you lend a developed government money, it is a pretty safe bet that they will repay you. But here is where Greece is a little different.
Greece became the first developed country to default on its debt¹ to the International Monetary Fund. This means that they broke the terms of their loan and there are consequences. It is these consequences that are currently being negotiated.
No-one knows the eventual outcome or whether there will even be a definitive conclusion. After all, this is a story that has been percolating now for six years. It has been known (or confidently suspected) that Greece would be unable to repay its loan. It just recently became news again because it actually did happen.
But with this uncertainty around, there are a few points to keep in mind. Despite the blanket media coverage of Greece, it is a tiny economy, ranking 51st in the world by GDP. It is a smaller economy than Qatar, Kazakhstan and New South Wales, none of which currently feature prominently in world news pages.
As a proportion of global share markets, Greece is also a minnow. As of early July 2015, it represented about 0.32% of the MSCI Emerging Markets index.
And while its total debt is large in nominal terms and relative to its GDP at about 180%, this still represents only about a quarter of 1% of world debt markets.
So why the worry? What worries investors is not so much Greece itself but the wider ramifications of the debt crisis for its European bank lenders, for the future of the single European currency and for the global financial system.
Yet, many of these concerns are already reflected in market prices, such as in Greek government bonds, regional share markets and the single European currency itself.
Maybe Greece will leave the Euro. Maybe they won’t. But please don’t lay awake at night worrying how such events might impact a low-cost, well-diversified portfolio.
If you’ve proactively established an investment plan designed to take advantage of the market’s upside – but balanced with enough conservative fixed-income exposure to dampen temporary downside – you can stop worrying about if, how and when Greece is going to default.
Of course, the human misery and dislocation suffered by the Greek people through this crisis should not be downplayed, neither should the financial risks. But from an investment perspective, there is still little individual investors can do beyond the usual prescription.
Remain diversified across many countries and asset classes, stay focused on your own goals and, most of all, listen to your chosen adviser, who hopefully understands your situation best.
¹ Source – ashurst.com
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