Recently, pundits have been on TV calling for the collapse of the euro; therefore, causing a collapse of the dollar, resulting in a worldwide depression.
We simply do not think this is true. If the euro were to crash, what will it do to the dollar? It could be anyone’s guess, but what does it matter? If you have only long-term money invested, you still have time to wait out a down market. We feel you should follow the Ten Year Rule, investing only money you do not need within the next 10 years in the stock market. Money you do need should be in fixed-income investments. If you choose, you could follow a 12 or 15-year rule. The idea is to follow a discipline, and stick to it.
On Tuesday, the pundits were calling for a collapse of Europe. By Wednesday, the central banks rallied to support Europe’s liquidity needs, and our markets rallied. If you are day trading on speculation from what you hear on TV, we believe you will surely lose.
We do believe the eurozone will eventually break up. It may take several years, and it may happen in stages, but we believe we will see a return to the lira, deutschmarks, drachmas, francs, etc. Currently, Germany is the only country with a solid economy. We do not think the citizens will continue to let the government support Southern Europe at the expense of their own economy.
When the euro dissolves, all the currencies will likely go down in value, except for the deutschmark. Germany will be hard pressed to export, as their currency will be expensive in comparison. The United States will likely still export to Europe, but likewise, our dollar will be worth more. We suggest looking at U.S. companies with operations overseas, preferably those that source locally. For example, McDonald’s Corp. (NYSE: MCD) will not import potatoes for their fries; however, companies like The Boeing Company (NYSE: BA) may find it more difficult as assembly is done elsewhere.
We feel the demise of the euro should cause an economic slowdown, but it should not be disastrous. Will the European banks become insolvent? We feel that depends on each individual country. We believe only Greece will truly fail, and as Europe and the rest of the world has been preparing for Greece to default, the impact should not be drastic.
We believe if the world is forced to take a haircut on euro bonds, investors should flock to U.S. Treasurys, stocks and corporate bonds. U.S. denominated assets should be in demand, as we are perceived to be the most liquid economy in the world.
Sure, the fall of the euro could cause the world markets to experience a sell-off, but a sell-off can happen any day in the markets, which brings us back to our point of only investing long-term money—money you do not need within the next 10 years to cover liquidity needs.
At Henssler Financial we believe you should Live Ready, which involves following a discipline of keeping money you need in fixed income investments. By investing only long-term money, you should be able to wait out a down market before selling stocks to cover your liquidity needs. If you have questions regarding our Ten Year Rule, the experts at Henssler Financial will be glad to help. You may call our experts at 770-429-9166, or e-mail at experts@henssler.com.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
