Europe’s sovereign debt crisis threatens the future of the Euro-Zone and the single currency itself. The problem, as many analysts see it, is relatively clear: the 17 nations of Europe that share a currency share little else. If one country’s economy begins to fail, the onus is on the others to prop it up.
While European leaders decide whether they want, or are able, to create a central government that can collect tax from all the Euro countries and spread debts across all member states, many investors are wondering if there’s anything they can do to protect their money from the consequences of the Euro failing. Though things are far from predictable, it’s prudent to consider some of the following options.
If the Euro crisis worsens, banks may be forced to cut down on their lending. This could mean rises in overdraft charges or demands for loan repayment. A canny investment for those with credit card debts or an overdraft would therefore be to pay these off.
Analysts such as Ray Dalio from Bridgewater Associates recommend that people should have approximately ‘10% of their assets in gold’. As previous economic turmoil has shown, the price of gold always goes up. Gold can be bought in sovereigns or bars. Alternatively, invest in an exchange-traded fund that tracks the gold market.
There’s never been a better time to buy property in countries such as Spain and Greece. In Spain, average property prices have fallen by between 27% and 70%. On the down side, it will be almost impossible to get a mortgage, so cash buyers only.
For a less risky investment, buy property in London, Hong Kong or New York – as economic conditions worsen, the perceived attractiveness of these cities results in rising property prices.
When markets are looking as shaky as they are right now, buying up fine art and collectables is a trusty investment.
Some analysts suggest now is the time to invest in European stocks. Writing in the Financial Times, Merryn Somerset Webb says that several markets on the cyclically-adjusted price/earnings (Cape) ratio are now ‘very cheap indeed’.
With Europe’s future looking so uncertain, the cautious investor will diversify their portfolio. By spreading their money across asset classes such as gold, property art, shares and bonds, shock losses should be relatively small.
Any money kept in banks should be less than £85,000 per banking institution – sums greater than this are not covered by the Financial Services Compensation Scheme. Further information on the safest place for investment can be gleaned by using tools such as the APT model from www.sungard.com/apt.