Download Will Greece and China Affect My Portfolio and Why Do We Care?

and vitality of the more mature American economy,
Greece and China might as well be in the dark ages.
Will Greece and China
Affect My Portfolio and
Why Do We Care?
By John E. Girouard CFP®, ChFC, CLU, CFS 07.16.15 If you’ve been watching the news lately you have
seen China’s stock market fall by a third in less than
a month, and Greece’s economy plunging towards
default. So far, China has wiped out $3.5 trillion in
wealth, more than the total value of India’s stock
market, and the Greeks have voted to reject
austerity measures that would save them from
default and ultimately removal from the European
Union.
It is no surprise that people have been asking me
how I think Greece and China will affect the
market. My response is why do you care? While
this usually triggers a nervous response, scary times
do not always make your portfolio scarce.
Greece is one of the largest exporters of sea
sponges. When was the last time you invested in sea
sponges?
In China, the reality is the Chinese stock market has
simply fallen back to levels last seen in March, but
is still up by more than 75% in the last year
[Economist Magazine, 7/11/15].
China is slowly transforming and adjusting to a
capitalist economic structure, and the European
Union is in its infancy. Compared to the magnitude
As an investor you probably think I should be more
concerned. But if you consider the history of U.S.
monetary policy you realize that while imperfect,
we have historical heft behind our economy.
The real problem is not the things we cannot, nor
will never, control such as terror threats, typhoons,
interest rates, political uncertainty, or the untimely
booms and busts that are a reality of modern
investing. The real conversation is how does one
protect your cash flow during those scary times.
Gone are the days where $1 million in retirement,
when interest rates were 10%, meant retiring on
$100,000 of income, and when rates fell to 4%
grandma had to cut $60,000 out of her lifestyle. No
longer can you cut the budget by visiting the
grandkids less.
Now let me rephrase the question. How much shortterm return would you be willing on giving up for
the possibility of sleeping soundly at night knowing
that you are not only financially secure but
financially independent?
Security during the scary times means first
determining the amount of money you need to
support your lifestyle, with and without work.
Second, calculate the gap. Then take five years of
the gap out of the market and place it in a secure
non-market based account to draw on worry-free.
Then set up portfolios of risk, or market based
vehicles, in 5, 10, 15 and 20 year portfolios, putting
the most volatile allocations furthest in the future
where risk can be better managed, and where over
time the temporary volatility of Greece and China
become simply a pimple on an elephants back.
The question you should be asking is not about how
the price of sea sponges in Greece will affect your
portfolio, or how today’s problems affect
tomorrow’s bottom line, but how can you structure
your portfolio to help achieve long term security
even through the bumps and busts.
A registered principal of Cambridge Investment Research and an Investment Advisor Representative of Capital Investment Advisors in Bethesda, Maryland, John E. Girouard is the author of “Take Back Your Money” and “The Ten Truths of Wealth Creation.”