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Could European Problems Affect Your Investment Portfolio?

Chances are that if you follow financial news at all you are well aware that Europe has been on the brink of disaster for months. And it’s playing havoc with the stock markets around the world.

This means that your investment portfolio could very well be impacted by what’s happening on the other side of the Atlantic. Here are some of the reasons that markets are jittery about what is happening in Europe:

  • Banking problems could mean another credit crunch: Banks in Europe are struggling a great deal. Indeed, they have been borrowing heavily from the European Central Bank. If bank problems persist (the recent UniCredit problems are a good example), credit markets around the world could tighten in fear. And when capital isn’t flowing to businesses, it affects stock prices.
  • Uncertainty = lower stock prices: In most cases, investors hate uncertainty. As a result, uncertainty often leads to lower stock prices. Right now, even though the U.S. economy is showing signs of recovery, investors are fixated on Europe. No one knows what will happen next, and that make the markets a little nervous. You shouldn’t panic, but that doesn’t mean no one else will.
  • Is another recession on the way?: Some think that the worsening of a crisis in Europe could trigger another recession. Even though the U.S. is making some progress, it could be undone by other problems — especially in Europe. Combined with slowing growth in China, and the world really does seem on the edge of another recession, and that could mean more stock market troubles.

What Can You Do?

This doesn’t mean that you should give up investing altogether, though. In fact, you can look for ways to shore up your stock portfolio with fundamentally sound companies and dividend stocks. On top of that, it’s worth noting that there are other investing opportunities right now.

If you can stomach the risk, you can find higher yields on foreign bonds right now. The very sovereign debt crisis that has stock markets jittery is resulting in high bond yields, since the higher-risk debt needs to be more attractive. Even French bonds are offering higher yields right now.

It is also possible to find interesting deals in the currency market. Consider that right now is an interesting time for forex trading. You do have to be aware of the risks involved, though, and be prepared to lose if you choose wrong.

For now, the U.S. stock market remains mostly solid. The Dow is still above 12,300, even though stocks have been retreating somewhat. So far, good news in the U.S. has managed to keep concerns about Europe from becoming too overwhelming. Just make sure you are aware of the possible consequences, and that you are considering your options. Opportunities might be on the horizon.

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