Greece and Financial Crises

News from Greece dominated headlines from late-June through mid-July. Until European and Greek leaders struck a deal, stock markets dropped due to the uncertain ramifications if Greece defaulted on its debt and left the Euro. In the video below, Weston Wellington from Dimensional Fund Advisors offers perspective on how investors should think about financial crises.

And the reality is that the Greek crisis, while fascinating, was overblown as a potential threat to global markets. Investors were concerned about a potential spillover effect (aka a "contagion"). Yet, the reality is that the Greek economy is small (0.3% of global GDP or about the same amount as Miami's metropolitan area). And 80% of Greek debt is held by large institutions that are strong enough to withstand a default. There is little danger that even a worst-case scenario in Greece would trigger a long-term downturn in global markets.

The bottom line is that long-term investors should not react to news. For one, stock markets behave unpredictably during and after turmoil. And two, the media often exaggerates the impact that events will have on investors.