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How the Financial Crises in China and Greece Affect Your Finances

glass paperweight of a map of the world
July 17, 2015

By Allison Videtti

If you’ve read the news recently, you might be a little nervous about your retirement portfolio. With Greece’s economy faltering and China’s stock market tumbling, many people – myself included – are wondering what this means for their finances.

My retirement account is what I’m most worried about, and I don’t think I’m alone. Most people I’ve talked to have the same question: “Am I going to lose a ton of money?”

There’s no clear-cut answer because a lot of it depends on your individual portfolio, but it’s unlikely U.S. investors will be devastated by the crises abroad the way they were during the 2008 financial crisis.

“The issues in China and Greece will have an impact, but that doesn’t mean it won’t reverse,” says Chris Christopher, U.S. and global economist for economic data firm IHS.

Here’s what you need to know.

Greece and Your Retirement Portfolio

Greece is such a small economy that, according to many experts, even a Greek exit – sometimes called a “Grexit” (yes, really) – from the euro zone would have little impact on the market. Of course, there would likely be a dip because the market fluctuates based on even small economic news, but the U.S. market wouldn’t crash and burn just because Greece defaults or leaves the euro entirely.

People are tired of Greece, Christopher says, to the extent that many investors have zero direct exposure to the Greek economy.

That said, things could get ugly if Greece’s troubles spread to other countries like Portugal, Spain and Italy, all of which have had economic issues in the not-so-distant past. If Greece defaults, all of the countries to which Greece owes money are out of luck. Without that money coming in, those country’s economies could be at risk. And that ripple effect could spell trouble for U.S. investors.

China and Your Retirement Portfolio

Greece has been the main media focus over the past few weeks, but trouble has been brewing in China, too. The country’s notoriously volatile stock market, which has been surging for the past 12 months, plummeted 30 percent.

To put this in perspective, Larry Summers, former Clinton Treasury Secretary and former economic advisor to President Obama, told CNBC that between Greece and China, what’s happening in China is a “greater source of financial risk to the world.”

Christopher agrees that a potential meltdown in the world’s second-biggest economy poses the greater threat. “Greece is a lost cause, but China is still viewed as having the potential for growth,” he says.

The biggest potential for impact is if the Chinese stock market crash spills over into the Chinese economy. That we would definitely feel here in the U.S. Why? Because many multinational corporations do business in China. If Chinese consumers aren’t spending money because they’re not confident in their economy, those multinational corporations could see a dip in profits.

So what does this really mean for me?

At the end of the day, there’s a lot of “may,” “could” and “might” when it comes to Greece and China because so much of what happens in the U.S. depends on their unknown economic futures. For example, though Greece and its European creditors recently agreed to a bailout deal that requires austerity measures and debt repayment, reports indicate that the International Monetary Fund (IMF) – one of the key players in the deal – could walk away if Greece isn’t afforded some debt relief.

It’s a lot to think about, but in researching this story, my three key takeaways were:

  1. Diversify. That is seriously one of the most important things when it comes to your investment portfolio. You can save yourself quite a headache if you just don’t have everything tied up in one place.
  2. The global economy matters to us here at home. Even if you’re not directly impacted by the rise and fall of the Chinese stock market or the Greek economy, all of us could be impacted by how their economic turmoil affects the global economy.
  3. Going it alone may not be the best idea. Speaking of point #2, I can’t imagine trying to navigate the ins and outs of the markets by myself, so I’ll be looking to my credit union’s financial consultant for help.

While it’s certainly a weird time for the global economy, this isn’t the first time there’s been trouble in the euro zone, and it’s not the first time that China’s stock market has been volatile. If anything, the economy going up and down is par for the course.