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Ambitious Rescue Plan

I spoke on Friday about further woes both for the eurozone and the global economy.

It appears that there is an ambitious rescue plan being developed by the International Monetary Fund and Greece. It is likely to involve a massive 50% write-down of Greece’s government debt and an increase in the size of the eurozone bail-out fund to €2 trillion (£1.7 trillion, or $2.7 trillion) from €750 billion. It is hoped that the plan will be in place in five to six weeks.

So what does this mean for the average investor? Well, put simply, the more money that the banks have to write down as debt to Greece means the less money that is available to anyone looking for a loan or a mortgage. Also, the value of your stocks and shares has taken a massive hit over the past few years, so if you need to access the money tied up in your portfolio, you will be crystallising this loss.

Pension funds and insurance companies also invest heavily in the stock markets, so with losses across the board, the value of your pension is most likely reduced and the cost of you insurance premiums is likely to rise.

Is it time to panic?

Not really. Most investments that individuals make are for the long term, so short-term fluctuations should not be too much of a worry. That said, for those approaching retirement, the situation is not so clear cut. Unless you have a final salary (or defined benefit) pension scheme, the value of your fund is likely less than it was a few years ago and this is exacerbated by the fact that the annuity you may with to buy will cost you more (i.e., the income from the annuity will be less) than it would have before this current setback.

In this period of low interest rates, savings are not growing like they did a few years ago but, for most of us, lending rates have also fallen so where we are not benefiting from our savings interest we are conversely benefiting from lower mortgage and loan payments.


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