Protect your cash and profit from the eurozone crisis

by Laura Shannon on 30 May 2012  |  8 comments
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Europe is in serious trouble, with the effects already being felt in the UK. How can you protect your investments, or even profit from the chaos?

Greece is struggling to service its public debt and is close to exiting (or being booted from) Europe, while Spain’s Bankia has asked for a £15bn bailout and Italy and Portugal are also in vulnerable positions. So what impact could this have on you and your money? And how can you spot opportunities?

The domino effect

Pension funds invest in stock markets, which have plunged in recent weeks as investors become increasingly nervous about the stability of Europe. So in turn, the value of pension funds could weaken in the short-term.

The trend of worried investors moving their cash to ‘safe havens’ has also pushed down the yield on UK Government bonds, which in turn affects the pricing of annuities.

So now isn’t the best time to cash in your pension pot for a guaranteed income in retirement, as rates have fallen dramatically. If you do need to buy an annuity, be sure to make use of our annuity comparison tool to get the best possible pay out.

The value of shares could also fall further still, especially if the Greek exit does happen. Anyone with money invested in the stock market or Europe-based funds could see the value of their investment fall as a result.

Banks that are exposed to Europe’s debt problems are also likely to shrink their mortgage lending, affecting buyers and remortgagers, while savers with money in institutions not covered by the Financial Services Compensation Scheme are taking a risk with their cash.

Jobs reliant on Europe

Even your salary could be on the line because of the eurozone crisis.

If your company is dependent on the performance of countries within Europe – perhaps it exports to those countries or has other vested interests abroad – any austerity measures or collapse in that economy will affect profits at home.

If profits are hit, the company might have to lay-off staff.

Protecting your cash

Let's start with how to defend your finances from the onslaught.

Protect your investments

The best way to shield your investment portfolio from losses is simply not to panic. Selling shares in a frenzy would cement any loss. If you can afford to take a long-term view and not get caught up in the here and now, you have time to recoup a fall in value.

Look at opportunities in global markets outside of Europe. Emerging markets such as the BRIC countries (Brazil, Russia, India and China) are often touted as the place to put your cash for more promising long-term returns, but they haven’t always performed so well over the last year or so.  

Make sure your portfolio is diversified – so don’t put all your eggs in one basket. Invest in a range of asset classes, such as equities, bonds, property and cash. You might also consider corporate bonds – as many companies won’t be impacted by what is happening in Europe and can still deliver strong returns. Read Boost your income at low risk for more.

You can also select a fund based on risk and switch from a high-risk fund to a low-risk one, but beware of potential charges for doing so.

Check your savings are covered

If you have savings in a European bank not covered by the FSCS, check what safety nets are in place for your savings and consider spreading your cash to minimise risk.

The FSCS guarantees up to £85,000 per person, per institution for banks that are authorised by the Financial Services Authority in the UK. This includes Santander - despite that fact that it’s a Spanish bank, its UK arm is separate from its parent company.

Read more about protecting your savings in How to survive the Eurozone meltdown and Who owns your bank or building society?

Consider fixing your mortgage

High street banks have been affected by the eurozone crisis and funding costs have increased, so lenders could push up rates for homeowners.

The base rate is likely to stay low for another few years but that’s not the only factor to influence mortgages and some lenders have already pushed costs higher. If you can’t afford any increases to your mortgage costs, consider switching to a fixed-rate deal.

Read Eurozone crisis pushing up mortgage rates for more on this.

How can you make money from a disaster?

Both investors and holidaymakers could benefit from what’s happening in Europe, as mercenary as it may sound.

If you can hold your nerve, a fall in stock markets allows you to buy funds and shares more cheaply and then profit from any recovery. However, investors should still spread their risk across assets and be prepared to keep their money invested for the long-term.

Holidaymakers can also benefit from cheaper holidays in Greece and a better exchange rate when swapping pounds to euros. Huge discounts have been offered to tempt travellers to the country, so you’re more than likely to find a bargain and see your money stretch further. However, be aware that any unrest in the country could impact your stay – you certainly don’t want to get caught up in any riots.

If Greece does leave Europe, its currency will also change back to drachma, meaning you can’t use your euros. However, this is unlikely to happen quickly; it would be a gradual change.

More on Europe and the economy:

UK falls back into recession

Who owns your bank or building society?

How the eurozone crisis affects us

Foreign currency exchange: don’t get ripped off on your holiday money