The Greek Crisis: Make Sure You Diversify!
The Greek crisis demonstrates the importance of diversification. LGBT couples should ensure that investments are coordinated with each other to avoid overexposure to sectors such as Greece.
It does not take a financial expert to understand that the Greek debt crisis is already having dramatic negative effects on their national economy. All investors should also consider how this crisis could affect their own financial returns. The Greek crisis should only have a minor effect on your entire portfolio, as long as they follow an important piece of advice we have shared in prior blogs that is worth reiterating; Diversification! If one has a significant number of their international portfolio focused on one nation, like Greece, you unnecessarily increase your risk of losing an incredible amount of value in your investments. In general diversification protects your investments from unique, unforeseeable events, like natural disasters or financial meltdowns. However if you divide your investments into a variety of nations, as well as types of investments (i.e. stocks, bonds, mutual bonds), you lower your risk exposure. This matters for all couples that are investing, including the LGBT community.
Many people living in the United States do not consider the importance of diversifying internationally. If your portfolio only had investments in the United States in late 2007/early 2008, the financial crisis and resulting major recession would have a huge negative effect on your financial well being. One should have a certain amount of your investments exposed internationally, and across a variety of different sectors and nations. It also recommended that when setting up a portfolio abroad, you should invest a portion of your assets in unhedged currency exposure when buying stock and bond funds. Having investments in a variety of foreign currencies helps offset the exposure one has to any one currency, in particular the US dollar. While the dollar had a strong run recently, this trend could easily reverse in the opposite direction, in which case exposure to foreign currency would be helpful.
Coordinate Your Investments-and Your Financial Life in General
LGBT couples need to make sure they coordinate their investments together to have the appropriate household diversification. This is particularly important for international investment exposure. Imagine if each person in the couple had too much European market exposure and then the Greek crisis hit. Coordination of investments should not only be in terms of nations, but also sectors and types of investments. For example, if a couple invested most of their money in technology stocks in the late 1990ís, they would have had a severe financial hit from the tech bubble bursting in 1990-2000. Communication with your significant other about the proper amount of stocks vs. bonds, national vs. international, and economic sector (technology, banking, medical, etc.) is very important to maintain optimal diversification. Now that LGBT couples can get married in all fifty states, couples will also need to coordinate and communicate about their investments to provide maximum tax efficiency and estate planning, in addition to diversification. This is why it is recommended that LGBT couples meet with a financial professional with expertise in all of these issues.
Tags: Gay Financial advisor, LGBT financial planning