Greek leaders are scrambling to nail down a new bailout deal before July 20, when the country would otherwise default on a €3.5 billion bond repayment to European creditors and might be forced to abandon the Euro currency altogether.
As recent stock performance in the U.S. suggests, fears of what a so-called “Grexit” could do to Europe’s economy has spread to American shores. Indeed, U.S. markets may very well be choppy for at least the next several weeks until there’s more certainty about the future.
But there are many reasons to believe that any impact on your 401(k) or IRA investments would be short-lived.
Even if the worse case scenario happens and the Greek crisis affects Europe—or even causes a slowdown among U.S. companies that rely on European demand—history has shown that people who keep investing through recessions make their money back more quickly than one might expect. For example, if you had been so unlucky as to start investing $1,000 per year in the stock market right before the most recent recession, you would have made your money back after only two years post-recession.
That’s a good reason to stay calm and not do anything rash.
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Certainly, investing in today’s globalized markets comes with risks. While Greece is relatively tiny, for example, China is a top global trader—and its current market crash could potentially affect economies across the world. But the fact that it’s hard to predict how market forces will play out on a global level is a reason to stay diversified, with portfolios exposed to many different countries and their economies.
Watch the video below to learn more about why foreign stocks are important to your portfolio: