Despite all of the negative headlines about Greece, equity markets were flat or up slightly

GreeceThe second quarter ended with news from Greece. Again. Banks and markets throughout that country closed the last week of June after Prime Minister Alexis Tsipras announced he was calling a referendum on July 5 to determine whether to accept the terms offered by Greece’s international creditors. Greece voted “no” by a wide margin. Since then, the Greek Parliament voted to accept the demands of the European Union to receive a third bailout. At the time of this article, several European parliaments have also voted in favor of the bailout agreement.

If you think you’ve seen this movie before, you have. The Greek debt crisis started in October 2009, when Greece announced it had been understating its deficit figures. By spring 2010, Greece was on the verge of bankruptcy. To avoid a Greek default on its burgeoning debt, a coalition of mostly European countries stepped in to provide relief. But this eleventh-hour bailout had some strings attached, specifically requiring “austerity measures” (budget cuts and tax increases). Unfortunately, Greece’s financial woes did not improve and required another bailout in 2012 with roughly the same terms as in 2010.

Since the 2012 bailout, the news has been mixed. On the plus side, by late 2014, Greece was finally spending less than it was collecting. However, the Greek economy is still in very bad shape and is smaller today than it was in 2010. Unemployment is north of 25 percent overall and much higher for young people. In 2015, Tsipras was re-elected based on the promise that he would be able to renegotiate the terms of Greece’s debts with its creditors. Failing that, Greece has announced it will be forced to default on some or all of its obligations.

This trans-Atlantic drama has been building all year, but what does it mean for globally diversified investors? The answer so far: not much. Last quarter, the S&P 500 was up 0.3 percent while the MSCI Europe and Far East (EAFE) Index was up 0.6 percent. Despite all of the negative headlines, equity markets were flat or up slightly. The reason the impact has been so negligible is twofold: Greece is a tiny player in the context of the world’s capital markets; and no one knows how it will all turn out.

Greece has a population of 11 million people, a gross domestic product of $242 billion (roughly 0.3 percent of the world’s GDP) and covers approximately 51,000 square miles. Ohio has about as many people, and Louisiana has a similar GDP and land size. Greek companies represent just 0.04 of one percent of our global equity portfolio, and none of the bond funds we recommend include debt from Greece (or other financially troubled European nations like Ireland, Italy, Portugal or Spain).

How will these latest events unfold? As always, our crystal ball is cloudy. We believe the direction in which the markets will move next is something no one can accurately and reliably predict over the long term. Eventually, we will see a markets correction, and some prognosticator will prove to be right, even if that forecast is more a matter of chance than some touted skill in market timing. But rather than worry about what you can’t control, remember that our investment strategy is designed to build the expectation of inevitable periodic corrections into your uniquely designed personal financial plan. So our advice is simple: ignore all of the hype and remain focused on the long term.

The takeaway from this crisis (and the others we’ve experienced the past few years) is never to take more risk than you have the ability, willingness and need to take, because the markets will surely test your discipline. Please call us if you have any questions or concerns.