Debt Ceiling Standoff: 4 Ways To Shield Your Investments From Collapse
Written by
Vance Cariaga
Edited by
Nicholas Morine
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The key to successful investing isn’t just about watching your money grow during good times, but also keeping it from shrinking during bad times. Investors should keep that in mind as a potential government default looms — an event that would lead to very bad times very quickly.
A default could happen as soon as June 1 if lawmakers don’t pass a bill to raise the debt ceiling, Treasury Secretary Janet Yellen said earlier this month. If the U.S. were to default on its debt, it would have dramatic economic and financial consequences. As Yellen warned, many Americans could lose their jobs, American businesses would see credit markets deteriorate, and consumers could see a spike in mortgage, auto loan and credit card rates.
For now, there’s still hope that lawmakers will avert a crisis by agreeing to a deal before the June 1 “X” date.
“[N]o one in Washington has any incentive to see the US default… [but] no one is also really incentivized to compromise before the actual deadline,” Libby Cantrill, managing director and head of public policy at PIMCO, told CNN. “Nevertheless, we remain confident that a deal will happen in time to avoid any sort of breach.”
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If the government does go into default, then you can expect the economy to make a major hit and the stock and bond markets to get badly rattled. A default could even speed the country into a recession. That’s why it’s a good time to look at ways to shield your investments from collapse. Here are four steps you should take.
Sell Your Treasury Bills
This is a good strategy if you have invested in T-bills that mature on or right after June 1, CNN reported — especially if you need the money. Consider selling your bills now and reinvesting them in bills that mature sooner.
Increase Your Retirement Plan Contributions
When the stock market tanks, you shouldn’t automatically sell off your stocks or reduce your 401(k) or other retirement account contributions. On the contrary, it might be a good time to increase your contribution so you can get stocks at cheap prices. When the markets go back up again — as is the case, historically — you will make a nice gain on your investments.
Move Your Money to Dividend Stocks
As GOBankingRates previously reported, stocks that pay high dividends often attract investors during periods of uncertainty because the income you get from dividends can help offset any temporary declines in the stock price. These stocks also tend to be more conservative in nature and produce consistent financial growth.
Review Your Bond Exposure
Financial experts recommend checking to see that the bond portion of your portfolio has adequate exposure to intermediate and longer-term bonds, CNN reported. You don’t want to be too heavily weighted toward short-term bonds because you face reinvestment risk further down the road. It’s better to lock in rates now, before a default.
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