How Investors Can Negate The Euro Crisis

By Lewis Humphries | July 03, 2012 AAA

The eurozone crisis shows no sign of abating, with a record high level of unemployment existing alongside an increasingly bleak manufacturing outlook. With an estimated 11.1% of eurozone citizens now unemployed, and further increases in this figure expected before the close of 2012, it appears as though the crisis is more likely to worsen before it can be eased.

Youth unemployment remains especially high, and with a staggering 3.4 million individuals aged 25 and under now out of work, there is reason to believe that the effects of the eurozone crisis will also be felt for many years to come. While member nations such as Greece, Ireland, Spain, Portugal and Spain struggle with the crippling effects of depression and substantial government debt, it is difficult to detect even the faintest slithers of light within the ever increasing economic gloom. Here are a few tips you can use to weather the financial storm.

SEE: Behind The Euro

Invest in Cash Rather than Stock: The Safety of the Dollar in a Recession
One demographic that has a history of thriving in economic adversity is financial market traders. Investment legend Jesse Livermore provides a relevant case in point: while the vast majority of traders lost significant sums of capital during the notorious Wall Street Crash of 1929, the "boy plunger" boasted a personal wealth of more than $100 million. He achieved this through short selling profitably; this proves not only the flexibility of trading on the open financial markets, but also the benefits of studying and developing innovative investment methods.

SEE: Jesse Livermore: Lessons From A Legendary Trader

One of the key ways that traders can remain profitable during the current financial crisis is to invest heavily in cash; this is certainly a trend that remains influential in the existing market place. According to leading fund broker, Bestinvest, 75% of all money invested by its clients during May went directly into cash, rather than stocks or equity, as traders looked to protect their capital from substantial losses. While cash accounts may suffer slightly in line with the prevailing rate of inflation, they offer a low risk opportunity during periods of financial hardship.

Dividend Funds: Still Reliable During Times of Financial Crisis
While cash remains king for investors in a strained economy, there are some stock trading options that also offer benefits to investors. The most prominent of these is dividend investing, which is a practice whereby individuals place their money in relatively safe blue chip stocks that secure regular and often sizable financial returns throughout the year. Dividends have remained popular thanks to the growing understanding that share price appreciation is not the only vehicle for turning a profit in the open financial market. The fact remains that dividend funds can generate stronger returns with far less volatility than alternative trading options.

This is an attractive proposition in times of international economic hardship, and also one that is supported by various statistics and studies. According to an Al Frank Asset Management study of large-cap stocks between 1990 and 2005, it was discovered that dividend paying stocks outperformed non-dividend paying stocks, both in terms of their overall return and reliability over a significant period of time. This knowledge is an invaluable tool to traders, as it allows them to develop a reliable portfolio of individual interests that have a history of performing during strained and difficult financial times.

SEE: How Dividends Work For Investors

Precious Metals: A Relatively Strong Tool in the Trading Armory
The most successful investors are almost always students of history and generally have an appreciation of which shares, commodities and trading methods can ensure that they remain profitable during a recession. This is partially responsible for the popularity of gold, silver and precious metals as investment assets, as the strength and value of these commodities typically soar in periods of economic hardship. According to Swiss private bank, Lombard Odier, every global financial crisis since 1920 has seen gold generate an average 21% return on an annualized basis.

This trend has continued during the current economic crisis as it has engulfed the eurozone, as the price of gold in particular rose by a significant 171% between September 2010 and November 2011. These statistics support the notion that gold and other precious metals are valuable assets to own during financial crisis and the systematic collapse of individual currencies, as they retain their value and remain in demand throughout every corner of the globe. With recent shorting activity by hedge funds, dedicated gold funds have also experienced a significant and prolonged resurgence that is likely to continue even in the face of continued economic crisis.

SEE: The Love Affair With Gold

The Bottom Line
While there has been a general perception that the eurozone crisis was primarily caused by the profligacy of individual governments, it is perhaps more accurate to consider the actions of overzealous financial lenders during times of prosperity. Regardless of the contributing factors that have influenced the European economic collapse, however, there remain numerous opportunities for traders to invest their money wisely and generate significant returns on the open financial market. So long as investors are willing to study the current market and the performance of various stocks, shares and commodities through the ages, then there is no reason why widespread economic crisis should inhibit individual profitability.

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