Could ISIS Affect Your Investment Portfolio?

Could the terrorist network ISIS affect your financial future?

Nobody knows for sure what the future will bring, but as you evaluate your portfolio, you should ask yourself if any of the companies you own — especially the big multinationals that move the stock market — are doing business in a “hot zone” or were planning to do so in the future. If that’s the case for any of your holdings, you need to give them some extra attention.

But now consider this: There’s a bizarre way that ISIS can actually help your portfolio. As ISIS expands, people become fearful — especially in Europe, which is right next door. And when there’s fear in the world, people buy U.S. bonds. Always have, always will.

If Francois in Paris is worried about Islamic terrorism and wants to get his money out of France, he’s going to buy U.S. bonds. But he has to buy those bonds with American dollars, not euros. So he converts his euros into dollars and buys U.S. bonds, pushing their prices higher … and their interest rates lower.

Low interest rates are great for our economy. They also push stock valuations higher. And as long as the world -- especially Europe -- fears ISIS, interest rates will stay low.

ISIS has a minimal impact on the world economy right now, but that could change very quickly, and investors need to be prepared. Many people think a bell goes off that alerts people when to get into or out of their investments, but it just doesn’t work that way. The need to make adjustments creeps up on you, slowly and quietly, much as ISIS has spread in the Middle East — and if you ignore the warnings, before you know it, it’s too late.