The Lessons of Greece

A few weeks ago, debt-burdened Greece reached a tentative bailout deal with creditors to save itself from economic collapse—at least for now.

With the deal, the country of 11 million has a lifeline for the next three years, and the threat of it leaving the euro has been at least temporarily defused.

But the Greek drama ended up hurting many U.S. investors. Or more precisely, it spurred them to inflict damage on their own investment portfolios. In the volatile weeks and months leading up to the bailout, countless investors made emotion-based decisions to buy or sell.

Many feared that a contagion from Greece would spread throughout the eurozone, creating real trouble for global markets and their own investments. It’s safe to assume that even a great number of investors who were fuzzy on the facts hit the sell button as part of a herd mentality.

The Greek crisis was a classic test of investors’ discipline. And it’s a safe bet that by selling impulsively, many wound up losing money—and losing ground in the race to achieve their financial goals.

As veteran financial advisors, we’ve seen fear-based selling countless times over the years. We appreciate that when scary headlines appear, when markets are veering up and down, and when fellow investors are heading for the exits, it’s hard to stand pat.

But if anything is true about the markets, it’s that volatility is normal. In the short term, markets go up and down just like waves on the ocean. Investors will well-balanced portfolios, however, have the perfect vehicle for riding out that volatility.

Diversified, long-term portfolios can help ensure that our ride is as smooth as possible. By counterbalancing investments with different characteristics, we can avoid the worst of the market’s losses. As a result, our money can grow more quickly when markets are favorable.

We can rest assured that there will be more “crises” ahead, and more market volatility. One possibility is China, where a slowing economy has recently rattled markets and may do so again.

But short-term headlines are no reason to make significant changes to a portfolio. There are indeed factors that can make it worthwhile to redesign your portfolio—changes in your goals, your risk tolerance or your time horizon are examples.

But scary headlines, like those that came out of Greece lately, shouldn’t prompt you to make any major change. As an investor, sometimes the hardest thing to do is nothing. But doing nothing can also be the best decision you make.

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