The markets spent summer 2010 dreaming of Greece—or, more to the point, suffering nightmares about the prospect that the country would default on its $300 billion debt and perhaps take the rest of Europe down with it. For months, fear drove fair-weather traders out of every asset class even remotely connected to Greece or Europe.
Although things still look a little scary now, it’s likely that within a few years, investors will barely remember even the worst-case scenario. In fact, you’ve probably forgotten the time five years ago when markets were also worried about the euro.
Rewind to June 2005. The financial media were full of talk about how the European Union was “faltering,” the euro was plunging to multi-month lows, and the fate of U.S. exporters dangled in the balance. At the time, France was the offender. Its crime? Voting against a new European constitution.
Today, few remember that failed constitutional vote or how ominous it looked at the time. The EU didn’t break up. The euro bounced back. And over the next two years, blue-chip U.S. stocks rallied 34%.
You can make a similar case for the Russian default of 1998, the Hong Kong currency flu of 1997, the Mexican crisis of 1994, or any other potentially apocalyptic market event. Well-diversified investors with a long-term view rolled with the headlines, stayed in the market, and reaped the rewards.