The recent default of the Greek Government on their debts has instilled fear in the hearts of investors and world leaders alike. Courts have agreed to a referendum on the potential bailout package that would either grant relief to the embattled nation or threaten its membership in the Eurozone. While these events obviously signal crucial ramifications for Greece and the European economy, many investors across the Atlantic are concerned that global economic fear will result in another recession reminiscent of 2008 or 1987. However, there are myriad reasons why stockholders shouldn’t be guided by fear of the crisis in Greece, and should instead take a more measured approach to their portfolios in the wake of these events.
In the Event of a Significant Drop, US Stock Markets are Poised to Recover Quickly
Both the Dow Jones and S&P 500 fell 2% on Monday, June 29 when Greece was unable to agree to new terms with its creditors. With a referendum vote coming early in July, it’s certainly still possible that the results of that vote could negatively impact the American markets further. However, history has often shown that quick shocks that occur during sustained bull markets (which the US is currently in) typically are promptly erased within a matter of days. There’s little reason to think that Greek default will have the same long-term effects on America that we witnessed during the tech bubble and the collapse of Lehman Brothers.
Regressions Lead to Buying Opportunities for Patient Investors
While investors with itchy trigger fingers sell off assets at the slightest sign of trouble, it leaves room for the patient prognosticators to buy on the cheap. It’s always inevitable that some people will panic during an event like this, so rather than contribute to it, you should see it as a prime opening to diversify while others are fleeing. Experts are forecasting long-tern gains for European equities over the long-term, thanks largely to the asset purchase program introduced by the European Central Bank.
Invest for Long-Term Gains
When faced with times of uncertainty, it’s important to remind yourself that shrewd investors are much more concerned with tracking the long-term success of their assets, and don’t lose their nerve in the face of moderate short-term losses. If you already have a well-diversified, robust portfolio the long-term health of your investments should be secure; if not, use this as an opportunity to strengthen your financial situation.
As Goes Greece Doesn’t Go the Rest of Europe
One of the most prominent fears concerning the fallout of the Greek debt crisis is that their potential exit from the Eurozone will lead to the collapse of the Euro and a sustained period of recession for the other European countries. While these events will definitely have lasting consequences for the citizens of Greece, the Greek economy is not a driver of the global markets in the mold of Germany or the U.K. Since much of Greece’s debt is now under the control of the International Monetary Fund, it is unlikely that this will result in bank failure on a worldwide scale.
Large-Scale Panic is Still Unlikely
Memories of the past have a persuasive influence on our visions of what will happen in the future. For American investors who have lived through the crashes of 1987 and 2008, and have relatives who shared stories from the Great Depression, it’s understandable that the events in Greece may signal the beginnings a familiar situation. In this case, it’s most likely that Greece will have to bear the long-term burden of their default, while the US markets are in position to rebound from any short term shocks.