Stock futures this week moving higher after earlier losses on the hopes of negotiation progress.
Drew Angerer/Getty ImagesInvestors are watching closely as President Biden and top congressional Republican Kevin McCarthy continue negotiations to raise the government’s $31.4 trillion debt ceiling for two years and avoid a federal default on the national debt. With a deal yet to be reached, Treasury Secretary Janet Yellen warns June 5 is likely the day the U.S. government will run out of cash and no longer be able to pay its debts. Regardless of the outcome and potential market volatility, pros say there are some steps investors can take now to secure their own peace of mind.
In the past week, investors have taken steps towards refuge in places such as gold and bitcoin as the debt ceiling deadline looms over financial markets. Further proof of volatility lies in the performance of stock futures this week, moving higher after earlier losses on the hopes of negotiation progress. Uncertainty aside, Julie Virta, certified financial planner and senior financial adviser at Vanguard, says investors should nevertheless “stick to your investment goals and maintain a long-term perspective.”
How should investors respond?
Despite the crescendo of panic around what failed negotiations could mean for investors, Chris Lyman, a certified financial planner with Allied Financial Advisors in Newtown, Pennsylvania says to ignore the noise and stick to your long-term goals. “I would personally not take any proactive steps at this point to safeguard against an event that will most likely not happen,” Lyman says, adding that even if it did, that “it is hard to safeguard against something like this, as so many financial markets and instruments are tied to U.S. Treasurys.”
If there was anywhere to go to protect from a catastrophe as dire as a default, Lyman says considering additional exposure to “international stocks may be more insulated.” That said, the federal government’s inability to reach an agreement is unprecedented territory, and that “there is no way to accurately predict the ripple effects in other markets.”
That’s why Jason Siperstein, president and wealth advisor at West Warwick, Rhode Island-based Eliot Rose Wealth Management, says his firm is not telling clients to do anything differently. “Markets surprise us all the time and we should all know by now that timing the market is a loser’s game,” Siperstein says. “Instead, investors should take note of how they feel amidst this volatility and uncertain political environment. If they are losing sleep at night, that is a sign that their portfolio is probably too aggressive. And it is always better to reduce portfolio risk during market strength rather than weakness.”
Buffer your risk
A Bankrate report last month found that 68% of U.S. adults would not be able to cover their expenses if they lost their job today, suggesting most Americans are not well-insulated from a national economic downturn. One in four went further to say they would be forced to put an unexpected $1,000 expense on a credit card and pay it off over time — and that’s without losing their job.
In a statement responding to the nature of current debt ceiling negotiations, Vanguard warned “the very nature of this situation increases the uncertainty in the economy and financial markets, which can mean greater volatility over the short term.” When it comes to investors’ long term plans, Virta says this may be a time to reassess their risk levels and build a safety net. (See the best savings rates you can get here.)
All things considered, Virta says anyone worried about their long-term financial situation should first ensure their invested assets are secured “in a well-diversified portfolio,” adding that a good rule of thumb for those concerned about their liquidity “is to maintain the appropriate level of cash to cover three-to-six months’ spending needs, and plan for any unusual cash needs for the year.”
Consider hiring a professional
Although most Americans agree working with a financial adviser when it comes to managing their money is a good thing, only a third actually do, according to a recent report from SmartAsset. Not everyone needs one, but periods of market volatility can prove stressful — as is a potential default on the nation’s debt. So it may be critical to consider having a professional working on your side. (Looking for a financial adviser? You can use this tool to get matched with an adviser who may meet your needs.)
“A financial advisor can help an investor solidify their investment strategy and maintain their discipline for the long-term,” Virta says, adding that they can also “partner with you in determining your goals and develop a plan to be successful in achieving those goals. In markets with downward pressure, costs matter more than ever; yet an advisor can potentially provide investment decisions, tax efficiencies, and planning opportunities for you that outweigh their expense.”
