Beginner Investing/Washington and the stock market
Hi, with the looming crisis happening in Washington, I am getting worried that the stock market is going to tank (especially if the country defaults). My Roth IRAs and 401k are mainly in mutual funds and some bonds. Although I am only 35 and have around 30+ years till I need it, there is a part of me that wants to move all of it into money market accounts until the children in Washington get their heads out of their you know what. What really scares me is the risk of default in a few weeks. What is your opinion? Thanks.
Thank you for your question! This problem is viewed several different ways by financial analysts. First, we have seen this before. If there is a shutdown, it is likely to be short term, and the effects on the market short term as well in that there may be a correction, but it will bounce back quickly after the budget problems are eventually solved. In summary, this approach views that this has happened before, and we know what will occur.
The second view is that these budget problems appear to get worse each time, so this exact type of problem has not actually happened before, its more serious, and could have a longer term effect.
So you are right there definitely is uncertainty. No one can really know what will happen. Yes, if you are a conservative investor, you could move funds out of investments to cash.
I find the answer is typically in between. You could consider some adjustments to your portfolio, perhaps reducing the amount you have in stock mutual funds, increasing the amount in general bond funds, and increasing the amount of cash. You do have a long time frame, and the problem is that when the stock market does go up, it usually happens quickly. Most investors miss bull markets, it happens while they are not prepared. If the debt crisis is solved, the market could take a bounce up fairly quickly, and you would miss it if out of the market.
In summary, the overall answer depends upon what type of investor you are. If you are very conservative, most concerned about protecting your funds from a negative drop, then you would not like the uncertainty ahead and move to cash or very safe investments like Money Markets. If you are medium in your risk tolerance, you would lighten your holdings in stocks, increase your holdings in cash and bonds. If you are aggressive, you would actually probably want to sell some things to get cash available, and if the market does drop due to a debt crisis, jump in and buy as much as possible at lower prices even if this means doing it during an initial government shutdown, or immediately before if it looks imminent.
I'm sorry there is no direct answer, just assess yourself on what type of investor you are, and go from there.
Please do not hesitate to reply if I can offer any additional service,