Will Greece leave the EU?  It’s more likely not a question of if, but when.  More importantly, should you as an investor concern yourself with the occurrence?

If the scenario plays out like the Asian Financial Crisis or the Russian Flu, we could see ~10% correction in the SP500 and ~15% in the EAFE (International Index).  Then again, should the markets repeat the financial crisis of 2008 the scenario will be much different.   As always, past performance is not a guarantee of future returns.

Again, does it matter?  I realize the notion of riding out another financial crisis is pretty low on the priority list of the majority of investors.  However, as in past corrections, the markets eventually price in the event and move forward.  Regarding Greece, this is shaping up to be the most well anticipated financial event in modern history, which is important because markets generally don’t overreact to “known quantities or events”.  Instead, historical crisis of major impact are typically associated with shock or surprise: Lehman’s failure and WTC/ 9.11.01 are two present day examples.

The most important steps you can take to minimize the impact is to ensure your portfolio is diversified across asset classes, and to limit concentration of individual holdings to no more than you’re willing to lose.  While the later part can be more difficult when considering tax implications or trading restrictions due to employer trading policies, the practice of diversification should be “old hat” to most investors.  Below is a chart demonstrating the power of diversification in past crisis, as well as a chart of the S&P 500 covering the period leading up to both the Asian Contagion and the Russian “Flu”.  I have also inserted a 20 year chart of the S&P 500 to further demonstrate the importance of keeping a long term outlook in mind with your investments.

Remember, it’s vitally important to invest appropriately for your time frame.  Short term needs shouldn’t be exposed to market risk.

Please feel free to share with friends and family, and please don’t hesitate to contact me if you want to explore this topic in greater detail.

Diversification in times of crisis_jason_m_brooks_indelible_wealth_group

Data produced by stress testing portfolios using tools from Kwanti® (www.kwanti.com) allocated according to the following ratios:

Conservative Portfolio: 25% SP500, 2.5% SP MidCap 400, 2.5% Russell 2000, 7.5% MSCI EAFE Index, 2.5% MSCI Emerging Mkts, 50% Barclays US Aggregate, 10% Cash (30 day US T-bill).

Moderate Portfolio 35% SP500, 5% SP MidCap 400, 5% Russell 2000, 10% MSCI EAFE Index, 5% MSCI Emerging Mkts, 35% Barclays US Aggregate 5% Cash (30 day US T-bill).

 Aggressive Portfolio 45% SP500, 12.5% SP MidCap 400, 12.5% Russell 2000, 20% MSCI EAFE Index, 5% MSCI Emerging Mkts, 5% Cash (30 day US T-bill)

Asian Contagion and Russian Flu

20yr SP500 w Events

Some links:

Asian Contagion: https://en.wikipedia.org/wiki/1997_Asian_financial_crisis

Russian Flu or Russian Financial Crisis: https://en.wikipedia.org/wiki/1998_Russian_financial_crisis

LTCM Failure (related to Ruble Crisis): https://en.wikipedia.org/wiki/Long-Term_Capital_Management

A piece by Silvia Merler on Greek debt and which countries have the highest exposure.


For data source on Silvia Merler: http://www.bis.org/statistics/about_banking_stats.htm