Will a Greek default affect my 401k? Independent Financial Advice
People want to know how to securely invest in a 401k, considering the risk that a Eurozone default could hurt a 401k.
The way the Greek debt default crisis will effect a 401k is that it would hurt European stocks, European bonds and would hurt the ability of the world’s economy to sell things to Europe which would hurt all types of stocks worldwide. The crisis will also make junk bonds go down in value and make AAA bonds go up in value. The crisis will cause something similar to a repeat of the September, 2008 crash where the world’s banks stopped lending and the world economy fell into a tailspin. However, because the world has so much more debt than in 2008 it will be harder to fix the world economy.
The crisis would severely hurt president Obama’s chances of reelection, possibly by inducing a rising amount of U.S. unemployment. His chances of reelection maybe only 17% because of the problems the U.S. economy is facing.
The best way to protect a 401k from a Greek default would be to assume that only investment grade bonds can survive the coming crash. (Remember in additon to Europe's problem's there will be a U.S. crash caused by the “fiscal cliff” tax increase of January 1, 2013, and by the preprogrammed drastic U.S. government spending cutbacks). In the typical 401k there is usually one mutual fund that is an investment grade bond fund. Google that fund and download and read its prospectus and other mutual fund company documents that describes that fund. There should be a one or two page “fund card’ on the fund company’s website that will say what the credit quality is for the fund’s assets. If investment grade it should have a grade of BBB or higher. Avoid funds that lack this. Be willing to accept a very low yield as the price to pay for safety. You will sleep better at night, when Greece defaults and the Euro breaks up, if you own investment grade bonds.
Don't let your 401k become worth as little as a coin
I wrote an article “Greek default risks damaging your 401k”.
Investors should seek independent financial advice.