The Greek debt fiasco rumbles on. As neither the country nor its creditors have been able to reach an agreement the deadline for a deal, which was set for today, has been pushed back to the end of the month.
Unfortunately, this means yet another month of uncertainty for Greek’s creditors and other investors around the world.
If there’s one thing the market can’t stand it’s uncertainty. And another three weeks of will they won’t-they debate will fray investors nerves.
This is likely to result in very jittery markets.
Hopefully, a deal will be made before the next deadline. However, if no deal is reached, Greece could be left with no other choice but to default on its debts.
Far-reaching
While it may not seem like it, the Greek crisis, and the possibility of a default is a real threat to investors’ cash around the world.
Indeed, even though you may have eliminated all exposure to Greece from your portfolio, a default will be felt by many companies and countries around the world.
Contagion
The biggest threat facing investors as a result of the Greek crisis is the threat of contagion. If Greece is allowed to fail, creditors will be forced to accept huge losses on the cash they lent to the country over the years.
Pension funds, banks, private and institutional investors around the world will suddenly find themselves nursing huge losses.
What’s more, if Greece does default, it’s likely that the country will crash out of the Eurozone, tearing the single-currency union apart.
All parties are concerned that if Greece leaves the Union, other countries will follow suit, jeopardising economic growth and recovery across the region.
Of course, this a worst-case-scenario but it illustrates what a Greek default could mean for the country and wider financial system in general. Few investors will be able to escape the market turbulence following a Greek default.
How to cope
So, how should you deal with the Greek crisis?
Well, the best way to ride out the crisis is to do nothing. Trying to time the market or trade around a default can be a risky strategy. It can often cost you more than you stand to make.
In the short-term, markets are unlikely to any kind of optimism after a Greek default. The FTSE 100 could fall as low as 5,000 just as it did during the last European debt crisis.
Still, after the dust has settled, it’s more than likely that the markets will rebound, just as they did after the financial crisis and after 2011’s Eurozone debt crisis.
The best way to protect yourself from this kind of short-term turbulence is to build a portfolio of dividend paying stocks and reinvest your income.
This technique helps you turbo-charge your returns when the market recovers. More shares are purchased when prices are low, and fewer shares are bought when prices are high.
Pick carefully
That being said, you need to be careful which companies you choose for your dividend portfolio. A company with a high exposure to Europe could be forced to cut its dividend if the Greek crisis sparks a wave of instability across the region.