From an economic perspective, there’s no question that when a rock falls into the water halfway around the world, the ripple effects can be felt here in the U.S. And a lot of rocks have been falling.
The easing of economic sanctions in Iran, the debt issues in Greece and
Puerto Rico and the recent devaluation of China’s currency, all to a
certain degree, have an impact on your nest egg.
For example, with Iran re-entering the world’s oil market, there’s
almost certainly going to be an impact on the price at the gas pump. The
devaluation of the Chinese renminbi and the rather drastic slowdown of
their economy is going to make it much more challenging for American
companies like McDonald’s and our own auto companies to do business and
make a profit in China.
This is important because many American companies rely on the Chinese
market for a significant portion of their sales. And if you own stock in
any of those companies, the impact on your nest egg could be
What’s happening overseas is also partly responsible for the drop in the
price of commodities like oil, silver and gold. Some might even call it
a price collapse. Your nest egg is also affected by the daily
fluctuations in stock prices and interest rates. What happens throughout
the world often causes those fluctuations.
As a financial adviser, I want to stress to clients and readers that, in
this day and age of instantaneous news, there’s always something
unsettling occurring that might cause us to worry about our money.
I can’t tell you not to worry, but I can say that investors need to have
an iron stomach in addition to a strategy. For most investors, a
strategy means diversification, which in turn means don’t put all your
eggs in one basket.
Does diversification mean you’ll always get the highest returns? Of
course not. For example, in 2013 investors who only invested in U.S.
stocks generally outperformed those in diversified portfolios. Keep in
mind, however, that they also shouldered more risk.
A diversified portfolio isn’t just domestic stocks. To be truly
diversified, you should think globally. That means international stocks
as well, plus bonds, cash, and perhaps some additional assets such as
real estate and commodities.
In the investment world there will always be something to worry about.
Some people believe they can avoid the worry by simply depositing
everything into the bank.
True, bank deposits are “guaranteed” by FDIC insurance, but there’s also
a downside. With today’s low interest rate environment, the purchasing
power of dollars in the bank decreases as prices throughout the world
increase. I’ve heard many retirees complain they can’t afford price
increases because they’re on a fixed income. It’s a valid complaint.
Yes, investors can always find something to worry about. But, as an
investor, it’s imperative you have a strategy. You may have to tweak it
over the years, but it shouldn’t be abandoned at the first sign of bad
Your money has to work especially hard when you no longer work. Since
retirement can easily represent a third of your life, it’s important
that you have a long-term strategy. And because it has an impact on your
financial well-being, be sure to think globally.