Often, when breaking news happens overseas, in countries far removed from our own, it can be difficult to recognize how this news impacts our lives. For retirement plan administrators as well as participants in those plans, however, global news can have real consequences. Some of these consequences may be noticed early while others may not be felt for months or even years. Nevertheless, a crisis in Europe, Australia, Asia or the Middle East is likely to affect your retirement plan in some way.
Examples from Europe
Events in Europe often have a direct impact on the stock market in the United States. Whether or not a situation will have a permanent effect on investments often takes time to determine. For example, the ongoing financial crisis in Greece has caused some moments of panic on Wall Street. One such moment came in the summer of 2015 when Greece voted against accepting the bailout terms offered by the European Union. Anyone following investment packages closely probably saw a drop in the value of their portfolio that week. However, the permanence of such a drop is linked directly to the type of investment portfolio you maintain.
For most U.S. investors, foreign investments make up a small portion of total investments. A diverse portfolio won’t usually see heavy long-term losses if a crisis is relegated to a single portion of the globe because only the percentage of investments located in that region will be directly affected. For example, aside from the initial panic that affected Wall Street in July of 2015, the crisis in Greece didn’t have a lasting effect on most retirement investments. Time will tell if the financial crisis there will have further and more profound effects on U.S. investors in the future, and that will depend on how the crisis affects other parts of the European Union as well as other countries throughout the world. Currently, the financial implications appear to be mostly contained to investments in Greek companies and a few commodities directly tied to the Greek economy.
Changes in the Global Economy
Naturally, some world events do have an impact on retirement investments here at home. The more widespread a financial crisis is, the more likely it is to affect U.S. investors. Likewise, a crisis in a place that the U.S. relies heavily on for trade will present a more serious problem for us at home. Conversely, some events around the globe have the potential to improve investment earnings potential, and it may not always be immediately obvious what effect an international situation or event will have on investments. For instance, while changes in China’s economy have concerned some investors, many experts agree that emerging markets will be a boon to investments in 2016.
Ups and downs are a part of investing and retirement plans. A good financial advisor can help you weather the global economic storms that you encounter on the way to retirement. As an independent third party administrative firm, Heartland Consulting Group will work with you and your financial advisors to administer the plan you set in place, or design one to meet your ongoing objectives.