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Risk Management, Stocks, and the Debt Crisis
While most people understand the current global debt crisis is a serious matter, many investors may still be thinking along these lines:
1.Companies are healthy right now.
2.Earnings are fine.
3.Dividend stocks do well in a bear market.
4.My investments are not directly impacted by government debt.
While there is some truth to the statements above, it is vitally important for investors to (a) remember the domino effects that occurred in the economy and financial markets during the mortgage and housing crisis, and (b) to have a specific risk management or "stop loss" strategy in place for all their investments.
The video below draws parallels between investor psychology, the economy, and financial markets during the previous financial crisis and the current debt crisis. Like all Americans, we hope the global debt crisis can be contained by central bankers and policymakers, allowing the bull market to regain its balance. However, we must be aware of and plan for possible negative investment outcomes.