By Matt Fortney and Leonel Calderon
It’s tough to read the business section of a newspaper or website without reading something about a European Financial Meltdown or another Crisis in the Middle East. According to the “experts,” these events are going to spell disaster for our portfolios and ruin our economy.Greece, the birthplace of Western civilization, is going destroy life as we know it!
That would be ironic, wouldn’t it? But when you stop reading the headlines, how do you really determine what is going to impact your investments and what is just fluff? There are no 100 percent, guaranteed accurate answers, but if we focus on the impact of a few of the biggest issues, you may have a better understanding of how they may, or may not, impact your investments. Below are a few of the most common questions we get asked.
Will a recession in Europe hurt my investments?
A few points to consider:
- Are you invested in companies that import or export products? A weak Euro is great for imports. It takes less US dollars to purchase European goods, making their price more attractive, which should increase sales. But it stinks for exports because it will take more Euros to buy US goods.
- Are your US based investments global companies? The largest US fast food chain and soda company each generate a large percentage of their sales internationally. A change in demand from consumers in Europe could have a big impact on their revenues.
- There’s always a logical response and a psychological response to events. Logically, if you have limited or no exposure to Europe, a recession may be either a non-event for you or perhaps even a buying opportunity. But psychologically, if you’re seeing doom and gloom headlines and start to panic, you may pull out of the market just to be safe. The fancy financial term for this behavior is “Headline Risk.” Now multiply your response by a couple of million investors and you can see how things could snowball.
Unrest in the Mid-East keeps making oil prices go up. That can’t be good, right?
Maybe yes, maybe no. If you were investing in the Big Oil companies the last few years, you’d be very happy right now. But rising gas prices definitely hurt the bottom line of companies that transport goods- shipping companies, airlines and delivery services as examples. Conversely, if you’re invested in companies that create remote meeting software or build hybrid engines, you may see a nice little bump as consumers look for ways to decrease gas costs. The funny thing about oil prices is that some economists think price increases are a good economic indicator, in moderation. If consumers can absorb increased prices, it could be argued that we’re in an improving economic cycle.
What’s going on with China?
The last few years, what little growth we’ve had in the world economy has come from places like China, India and Brazil. In fact, China is now the second largest economy in the world, behind only the United States. But their economy is starting to slow down. Where their Gross Domestic Product (a measure of all the goods and services in a country) was once running at 9-10 percent per year, now it’s more like 7 percent. By comparison, the US is only increasing by 2-3 percent in a good year. If you were investing in China because they were the hottest economy in the world, that party is probably over. If you were investing in China because it is the second largest economy in the world and a good way to diversify your holdings, it may still make sense.
As you can see, sometimes it takes a little bit of research to figure out what you’re invested in and how your portfolio is going to react to certain market conditions. Keep all these points in mind if you’re monitoring your own portfolio, or rely on the expertise of a financial advisor if you’d prefer to have someone else roll up their sleeves and dig around under the hood. Don’t let a talking head on television or a newspaper headline determine if an investment is right or wrong for you. There is a yin and a yang for every market event. The trick is figuring out if something is appropriate for you, then positioning yourself to benefit from the good or the bad that will follow.
The opinions above are those of Matt Fortney and Leonel Calderon and not of MetLife. This material has been prepared for information purposes only and is not intended to provide, and should not be relied upon as the sole source for any insurance and investment decisions. Matt Fortney and Leonel Calderon are Financial Services Representatives and Financial Advisers with Barnum Financial Group, an office of MetLife. Matt is a frequent guest host of SmartMoney Radio and Leonel provides financial education workshops for many FORTUNE 500® companies. Combined they have over 40 years of experience in the financial services industry. They can be reached at 203-513-6237 or mfortney@metlife.com and lcalderon2@metlife.com .
MetLife does not provide tax or legal advice. Please consult your tax advisor or attorney for such guidance. Metropolitan Life Insurance Company (MLIC), New York, NY 10036. Securities and investment advisory services offered by MetLife Securities, Inc. (MSI) (Member FINRA/SIPC) and a registered investment adviser. MLIC and MSI are MetLife companies. L0512258569[exp0912][CT]
