I’m currently far from the madding crowd vacationing in the Indian Ocean, however the luxury resort that I am staying in (with a price tag of $2500 per night – thanks Hilton for the free stay on points!) comes with WiFi so I get to see a little of what is going on in the world. The big news of the week is the Cyprus Bailout, I am sure that you are all aware of what is happening there, but if not the Cypriot Government is in a financial mess, and their method to secure a loan to bolster the financial system is to attempt to take money out of peoples savings accounts – they have threatened a flat 6.75% ‘one time’ cut on anything up to 100,000 Euro and 9.9% on accounts worth more than 100,000 Euro, expecting to raise some 5.8Billion euro of the total 10Billion Euro required for the bailout.
Meanwhile, the natives are revolting, and with good reason as no doubt the system in Cyprus is a stacked against them as it is for us in the US and the rest of the world, the bankers getting bonuses and gambling with the investors secure money, winning on the profits and not losing on the losses.
My take on the current Cyprus Bailout is that it isn’t really any different from anywhere else that allowed the banks to write the rule of engagement. Whilst we look on in horror at those poor people who are being threatened with losing their savings, how really is that any different from the impact of any such bailout? The individual is paying for the largess and mistakes of the financial sector, and the governments inability to comprehend the risk assessment of their practices, the crisis in every country has hit economic growth, cost jobs, dropped our net worth, and harmed consumer confidence.
Don’t look on at the Cyprus Bailout attempt and be grateful that this didn’t happen to you, because it did just happen to you and your investments and your economy are paying for it likely with much more pain than the 9.9% the wealthy in Cyprus are getting hit with.
The lesson is though, that each Country spins their needs differently in order to curry political favor and navigate a crisis that is much worse than they want to admit. When they do implement their austerity measures it will hurt the pocket. The lesson we can take from this as investors is to keep our portfolio diversified. This goes beyond simple sector diversification within a market, it means investing across a wide range of geographical regions, this balances your risk to events like in Cyprus – of course you will get hit by things in these regions, but with less of your eggs in one basket you ability to rebound is greater. Remember, you are not trying to get rich quick, you are trying to stay rich for a long time.
Diversification is key to surviving the bumps that these greedy and reckless bankers put in our path to financial independence. If you haven’t looked at your portfolio recently please do so, use a tool like Personal Capital (its free with my link here) and check your exposure of your portfolios and rebalance accordingly.
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