The Investment Scientist

Will Greece sink your portfolio?

Posted on: May 6, 2010

In the last few days, news of Greece’s bankruptcy has rattled the markets.  Pundits are predicting a spiraling debt crisis spreading to other PIIGS (Portugal, Ireland, Italy, Greece, and Spain) countries. Investors are worrying out loud that the crisis is going to sink their portfolios, again.

Not if they have a balanced portfolio.  Here is why …

Because we investors are human, there is always something for us to worry about. It just happens that this week it is the Greek fiscal crisis.

Two weeks ago, it was the SEC’s civil suit against Goldman Sachs. According to some CNBC talking heads, that was going to sink the market as well.

Three weeks ago, it was the unemployment numbers that refused to budge even as the economy is emerging from recession. Supposedly that signaled a recovery so tenuous that we could fall back into recession any time.

A month ago, it was the passage of the healthcare bill that pundits worried would blow the lid off of the US budget deficit.

These are all fading memories because we’ve found our new worry du jour. Next week, I am sure there will be something else to worry about.  If that’s how you manage your portfolio—trying to dodge every bullet, real or imagined—I pity you since you won’t be getting a good night’s sleep.

There is an alternative: carefully plan your investment based on your goals, needs, values, resources, and obligations (not the market worry du jour), construct a portfolio that is balanced in capital preservation and risk taking, and rebalance your portfolio with discipline.

If you had done this over the last two years, you would have survived the worst recession since the Great Depression with flying colors. (Here is a 70/30 model portfolio.)

In Chinese, the word “crisis” is made up of two parts: “danger” and “opportunity”. If you have a balanced plan and you have the discipline to stick to your plan in days like this, you can turn danger into opportunity.

Click to get The Informed Investor: 5 Key Concepts for Financial Success.

3 Responses to "Will Greece sink your portfolio?"

[…] Formerly “The Investment Scientist” Will Greece sink your portfolio? […]

Michael – as a fellow fee-only & DFA advisor I always enjoy reading your comments. In addition to your excellent points about it always being ‘something’, remember that the economy of Greece is only about $350 billion. It’s hard to imagine that a country with an economy the size of the US state of Georgia could ever sink a portfolio!

That’s a good point John.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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