10 Ways the European Debt Crisis Affects Your Investments

A look at several trends that investors should keep an eye on.

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An addiction to safety. Generally, U.S. treasuries are considered to be some of the most conservative investments out there. When investors get scared, they generally flock to safety in high-quality bonds like treasuries. That's what happened last week as investors crowded the treasuries market and drove up the prices of long-term notes. "For about a year now, there's been a lot of pessimism about U.S. treasuries," says Christine Benz, Morningstar's director of personal finance. "A crisis like this does illustrate that in a global market shock, treasury bonds are going to be some of the best-performing assets that you can have." The demand for treasuries fell on Monday as investors warmed up again to riskier assets, but last week's theatrics showed why it's important to have a well-diversified portfolio that includes treasuries.

Sovereign debt: Will it blow up again? The amount of sovereign debt—or debt issued by governments—is a growing concern in many developed nations. Europe's problems may be the most severe for now, but other areas of the globe also have their fair share of issues. Paul Zemsky, the head of asset allocation at ING Investment Management, says that over the next year or two, sovereign bonds will still be reasonably good investments, but he warns that problem countries could once again dominate headlines. "There's always that inkling that at some point, the fiscal situations of these countries will become front-page news again, and interest rates could respond to that and go up," he says. Conversely, many emerging markets have balance sheets that look much healthier. Notably, they generally don't have as many deficit problems, and they're also growing at a faster rate than developed nations. "They have much higher growth, so any mistakes they make they can grow their way out of," Zemsky says.

Tricky questions for foreign bond fund investors. For bond investors, the long-term implications of the European rescue package still aren't clear. "What this does in Europe is that it kind of spreads out the pain across all the countries, but it doesn't necessarily mean it's better for the euro overall," Zemsky says. If you're in a global bond fund, it's important that you're aware of how your fund is managed. "Currency fluctuations are a big driver of how any foreign bond performs, but it's also important to know that international bond funds have different policies toward currencies," Benz says. For instance, it's crucial that you know how much currency risk your managers take on.

[See 5 Global Bond Funds That Diversify And Cut Risk.]

A rush to the door. After a mass selloff that eerily resembled what investors came to expect during the recession, the U.S. stock market tanked last week. On Thursday alone, the Dow Jones Industrial Average was down by nearly 1,000 points during intraday trading. Much of this sharp falloff stemmed from bleak fundamentals coming out of Europe. But at the same time, the downward spiral pointed to investors who are still on edge in the aftermath of a crushing recession. "These things are always a confidence issue," says van Ark. As a result, don't be surprised to see similar skittishness in the market in the months ahead if investors get more bad news. As investors regain their nerve, experts expect things to calm down.

Promising opportunities for U.S. stocks. Despite last week's falloff, some experts say the fundamentals of many U.S. companies look appealing. GDP growth of upwards of 3 percent in the first quarter, a better-than-expected jobs announcement last week, and high earnings across the board are all signs that the U.S. economy seems to be growing stronger. "In the U.S., it's a good environment for equities," Zemsky says. Quincy Krosby, the chief market strategist for Prudential Financial, says investors should consider tilting their portfolio towards large-cap U.S. stocks. "The big large-cap names have underperformed," she says. As a result, she says they're due for some broader gains.