Greece has been dominating headlines the last few weeks, but this is actually not a new story. Let’s quickly recap on how Greece ended up in this position:
- Back in 2010, the PIIGS went through a debt restructuring. The PIIGS are Portugal, Ireland, Italy, Greece and Spain. These countries were weaker economically coming out of the financial crisis, so they were “bailed out.” I believe they called it a “Stabilization Package”…like we call it a “stimulus” or “quantitative easing.”
- Well, here we are again, only this time Greece is the primary concern. Will they get bailed out again? Will they default, meaning they will not pay back their obligations and leave the Eurozone? These questions have been constantly asked and debated over the last several weeks/months and especially over the last week.
- As of Sunday, they voted against taking the bailout.
While we’re obviously curious how Greece will navigate the pros and cons of this decision, the question we are most consumed by is, how does this affect us? Does it affect us at all?
Greece’s GDP (Gross Domestic Product), a measure of how much goods and services are produced by a country, is about $242 billion. In contrast, the state of Tennessee’s is over $300 billion. So no, it’s not a major player in the world’s GDP equation, in fact it’s only about 1.3% of the EU (European Union) GDP measure.
Greece’s current financial issues are due to several factors including high unemployment. The Greeks that do work don’t want to pay more in taxes (can’t blame them there), and they don’t want to relinquish their copious amounts of vacation. These factors culminate in the country’s continuing debt woes. But does this effect you?
Very simply put, no… it shouldn’t impact you.
Back in 2012, the topic dominating headlines was the fiscal cliff. It was described as if on 12/31/2012 America was going to fall into the abyss. Kind of like when humanity thought the world was flat… before Mr. Columbus went on his voyage. Back in 2012 we were all scared to death about what was going to happen to us when America went off the fiscal cliff. How did this affect you?
Rewind a bit further back to August 2011. We were frightened that interest rates were going up, China was slowing down, a stock market peak. Yes, back in 2011 the fear was that the stock market had peaked when the Dow was at $12K…sound familiar? How did this affect you? (Hint, the Dow Jones has moved from $12K in August 2011 to now roughly $18K.)
I’m not done yet, let’s rewind back to Y2K. Remember when we were going from 1999 to 2000? People were hoarding everything from canned goods to cash, from bottled water to bottled beer. Everyone was get ready for the world to end. So, again, how did this affect you? It didn’t… if you didn’t overreact.
From an investment point of view, everything is better today than it was in any of those periods.
Bad news constantly pops up in front of us every single day. Unless we put our heads in the ground we aren’t going to be able to avoid hearing someone saying that the “sky is falling” in regards to the stock market. So we have to ask, how can we avoid bringing this news into our investment strategy?
Think of the market scares like taking a college final exam. Leading up to it and facing the challenge seems daunting. You’re totally consumed by it. When you’re not preparing for it, you’re thinking about preparing for it and how you should really be studying or reviewing notes. But then, you take the test and move on. Looking back, you may remember that it wasn’t a pleasant feeling, but it’s no longer consuming you. Life has moved on.
Another example, a more positive example, is getting a promotion. For the next few weeks/months you’re elated. You’re on top of the world and nothing can knock you down from it. After a year or so, though, it’s old news and no longer on your mind.
Most of you have experienced these emotions in some capacity or another. We have all worried about one, if not many of the things that were supposed to keep the stock market down. Every week we meet with people, and the conversations around the various things we need to worry about are always similar. There’s always a reason not to get started. Not to invest. To sell everything, hold cash and wait until things “calm down” or “get better.”
This is major reason we spend so much time at Wela putting together financial content that dispels the myths and clears the air. The whole goal of the platform we’ve built at yourwela.com is to help make it easy to get started. It’s hard enough to get started when that is what we set out to do. Getting started when we have reservations and concerns makes it almost impossible.
At Wela, we talk with clients about these concerns so much that we actually keep a list we call the Dirty Dozen. This started a few years back because every week we’d learn of a new fear that investors were worried about. This is a list of issues that we’re facing in the world today that can cause panic and drastic decision making. To be sure, the list changes over time, but there is undoubtedly a pattern that we see. Here is a quick run through of some of the things on the list in 2011 that kept people from getting started:
- Oil & Gas prices surging
- Inflation concerns
- Interest rates rising
- Housing market overheating
- Euro debt fears
- Bond market bubble
- High US debt
- Japan’s economy and the radiation fears
At this point in 2011, the market was at 12,000… today we are over 18,000. That’s a rise of 50%.
What’s interesting is that many of these 2011 fears remain on today’s dirty dozen… but some have actually flipped we are now having the opposite concern.
Here are some things on the Dirty Dozen today:
- Janet Yellen, the Federal Reserve Chairwoman, saying the stock market is overvalued
- Interest rates spiking
- Oil prices crashing… (We can’t ever win here. In 2011 oil was a concern because they were rising and now they are a concern for crashing.)
- Stagflation (Which means that prices aren’t rising like inflation but they also aren’t falling, which is known as deflation. They are staying basically flat or stagnant.)
- Housing bubble
- US economic slowdown
- Bond bubble
- Greece exit of Euro
- US Debt
As you can see, we always have issues in the market. We will always have a Dirty Dozen, and you will always have a reason not to get started.
So, where do you go from here? We believe in a balanced, well-diversified portfolio as the best way to navigate all the headlines as they pop. Balanced and diversified just means having the appropriate amount of your money invested in stocks and bonds.
We like to use the idea of OYA… which is Own Your Age in income. The idea is that if we view our investments as two separate buckets - stocks that are expected to appreciate over time, and bonds which are supposed to pay us income over time and be conservative. Then we want our age as a percentage in bonds. So, if we are 42 years old we would want 40% in bonds (income) and 60% in stocks (growth). As we get older we increase the percentage of bonds. That would be keeping our portfolio balanced based on our age. Diversified just means owning different types of stocks and bonds and not putting all our eggs in one basket. For this we like to use low-cost ETFs that give us exposure to different parts of the market, the stock market, bond market, real estate and even different sectors like energy, financials, technology.
While it’s easy for us to write out a blog post like this explaining why you shouldn’t be nervous about Greece or investing, we understand that sometimes you need to speak with someone about your personal situation or to ask the questions that we haven’t answered here. Sign up for your free Wela account, and schedule a time to talk with us. We’re happy to go over the Dirty Dozen, or even help you think through what ETFs might make sense for you.