OUR BLOG ON:
The Ripple Effect
The Greek Deficit and the Canadian Investor
The current financial crisis in Greece, which is threatening the economic stability of Europe, is also causing uncertainty in markets as far away as the United States and Canada. Although Greece is a relatively small player in the international monetary system, our currency exchange rates and stock markets are feeling the ripple effect of this crisis.
Even announcements that other European Union countries and the International Monetary Fund will assist Greece in rearranging its financial affairs have failed to curb the negative impact of this crisis on international and domestic markets. This means investors, including Canadians, are losing money, especially anyone who invested in so-called “safe” Greek bonds.
Cause and Effect
Economists agree that the cause of the crisis is that Greece has spent far more than it has earned. As of late April, the resulting deficit was estimated at 14% of the country’s gross domestic product. Imagine spending 14% more than you earn. If you have no previous debt, and your earnings are solid, this might not be a major problem in the short term. However, if you already have significant debt and your household economy is in a shambles, can you imagine anyone willing to lend you a further 14%?
The effect of financial imprudence is the same for countries as it is for individuals. Spending more than we earn over a long period of time will cause a serious deficit, for ourselves and for anyone who has loaned us money. In the case of Greece, both its citizens and foreign investors are suffering the consequences.
Three Reasons to Invest at Home
- At the moment, investments in China, Brazil, Russia and India are popular; yet just a few years ago, investments in those countries suffered devastating failures. Today, investments in Greece are failing. The problem with all foreign investments is that the risks are extremely complex, whereas many Canadian investments are relatively risk-free. If you can earn 5% from a Canadian institution that is backed by your own government, is it really wise to gamble your life savings, hoping to gain an extra 2% or 3% on high-risk investments overseas?
- Bonds or other securities issued to you by foreign governments or companies will likely be subject to currency fluctuations. When the Canadian dollar is weak and the currency of the issuing country is strong, this works in your favour. However, in the last few years, the Canadian dollar has strengthened and foreign currencies have weakened, which works against you as an investor. The negative effect of fluctuating currencies is well beyond the risk tolerance of the average investor.
- As a Canadian investor, you will likely need Canadian money in the future, whether to retire or to accomplish any of your other investment goals.
You and Your Financial Advisor
Financial advisors have a professional duty to explain to their clients the risk factors in any and all investments. In the case of Greek bonds, there were two major risks: that Greece would be unable to pay its debts; and that Greek currency (the euro) would fall against the Canadian dollar. Any financial advisor suggesting a client invest in Greece was duty-bound to explain that the effect of either or both of these risks becoming reality would cause substantial losses.
If you have suffered a financial loss because your advisor failed to clearly explain the risks of an investment, you should contact a lawyer to discuss your right to compensation. John Hollander & Harold Geller are lawyers who are experienced at assessing potential claims and seeking financial recovery on behalf of clients who have suffered losses as a result of the negligence of their advisors. To date, 90% of the claims we have pursued have been settled in favour of our clients. To see if we can help you, contact us for a free, no-obligation initial consultation.
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The OIl Spill Financial Fallout | The Goldman Sachs "Sell-out"
The Greek Deficit | The Need for Speed – Time Limitation Periods
The Fraud Factor | Shedding Light on Leverage | The Stop-Loss Challenge
The Snag in the Sell System Signal