Will we all be ruined by Greek tragedy?
Written by Lynda Calver on July 07, 2015.
What often gets lost in the endless media coverage of the Greek crisis amongst the macro economics and political manoeuvring of the various parties is the true and tragic human cost. The situation has been bad for a long time. Just consider these statistics; 26% unemployment (50% for young people), 30% living below the poverty line and 17% unable to feed their families without food aid. It is no wonder the suicide rate has jumped 35%.
Unfortunately things look set to get even worse as the supply of cash dries up completely while the politicians, bankers and bureaucrats continue to talk and squabble. I don’t consider myself overly sentimental but I do feel for the ordinary Greek people trapped in a tragedy made by others.
Those of us not directly involved may look on in sympathy, but increasingly I am picking up on concerns that the effects will have an impact on the personal finances of people far removed from Greece or indeed Europe. There has been a lot of talk in the papers of contagion over the past two weeks. If Greece defaults on its massive debts it may be ejected from the Eurozone which will send shockwaves that will be felt much further afield than the EU. We can expect a period of significant volatility in financial markets which will no doubt be matched by sensational headlines in the world’s newspapers.
In a globally connected economy small ripples can turn into tsunami sized events particularly if the markets perceive that policy makers are dithering. Falling markets inevitably mean that the value of portfolios and pensions will also dip so do you need to be concerned?
I urge my clients, and everyone else, to stay calm. There is no hiding from the fact that extreme events can cause markets to fall, sometimes sharply and dramatically, but it is the long term that counts. This kind of short term, crisis fuelled volatility should not concern long term investors who hold portfolios well diversified across multiple asset classes and geographical markets. If those investments are professionally managed they will not suffer. In fact, if you have spare cash, low markets may be an ideal time to buy into an investment as you can get considerably more uplift as equities recover.
From the Tulip Bubble Crash of 1720 to the volatility we see today, financial crises have always been with us. We know the best defence is investing at the right risk levels in diversified, professionally managed portfolios and funds. If you do that, your money should come out of this current crisis in good shape. Hopefully the Greek people will be able to weather the storm with equal resilience.
What do the professionals think?
Read the views of award winning investment management firm, Tilney Bestinvest. Download Eurozone Update - After the referendum