How should individual investors view the European debt crisis as it pertains to building a properly diversified portfolio?
Financial markets are well aware of the problems in Europe. Thus, security prices reflect these risks. Unless you think you are better at predicting Europe’s future than other skilled professionals, you should invest in European securities, too. If — I repeat, if — they can resolve the conflicts, then returns should be strong.
If you prefer to avoid or limit exposure to Europe, you can attain international diversification through Pacific (e.g., Japan and Australia) and emerging market (e.g., Brazil, China and India) stocks and still have a prudent portfolio.
We would like to thank William Reichenstein, CFA, Ph.D., the Pat and Thomas R. Powers Chair in Investment Management at Baylor University, for offering his knowledge. Questions for this interview were contributed by Greg McBride, CFA, Bankrate.com’s senior financial analyst.
- Professor’s Profile:
William Reichenstein, CFA, Ph.D.
- Pat and Thomas R. Powers Chair in Investment Management