The debate over the debt ceiling is candy for pundits and headline writers. The scary writes itself. Is the United States bankrupt? Will the US default on its debt? Double-dip recession? No Social Security checks for Granny?
I don’t mean to belittle the seriousness of the issue or the semi-serious politicians tasked with coming to an agreement. Something big is keeping Washington DC up at night. Either there will be an agreement by the August 2 deadline or there won’t be, and the stock and bond markets will likely react no matter what happens.
Given this, and given the number of predictions that go along with the debate, I checked how some of my favorite financial financial advisors are responding to the question: If you’re scared about a bad outcome to the debt ceiling crisis, what should you do with your portfolio to protect yourself?
The results were surprisingly unanimous: your investments should reflect what’s going on in your life, not in Congress.
Ken Robinson, Certified Financial Planner (CFP), Cleveland
“Making financial decisions based on expected politics almost never works out,” says Robinson. “It creates a false impression that either I or they can predict the future, and I often say: one of the only things more unpredictable than the stock market is the US Congress.”
But what if the news is extra scary? “Ignore the news as a source of financial planning guidance,” says Robinson.
Larry Swedroe, research director at Buckingham Asset Management, St. Louis
On his CBS Moneywatch blog: “I can tell you what we are doing as advisors. We aren’t making any adjustments to client portfolios in response to the debt ceiling debate…We believe that efforts to try to move in or out of the stock or bond markets in anticipation of what will happen aren’t productive.”
Allan Roth, CFP, Colorado Springs
On his blog, Roth addresses the question directly: “What I’m doing with my own investments is absolutely nothing,” he writes. “Investing is a long-term proposition and the more we speculate in the short-term, the lower our returns are likely to be.”
Jorie Johnson, CFP, Mansaquan, NJ
“Reacting to short-term news with your long-term funds is not the smartest move,” says Johnson.
“As a financial planner, my job is to help my clients maintain their composure and not make gut reactions to their portfolio based on what they perceive is happening in the market or politically or in the world. There’s always going to be blips. There’s always going to be something, every month. We just don’t know what it is or when it’s going to happen or how long it’s going to take to correct.”
Dave O’Brien, CFP, Midlothian, Virginia
“A small number of my clients have raised concern,” says O’Brien. “Generally, this is in the context of ‘do we make the portfolio changes we were planning to make now, or wait until the debt ceiling has been raised (or Washington lets us fall into a big recession)?’ ”
What should they do? “For those situations, my advice is to wait until we know the outcome. I’d rather be wrong and stay in a more conservative stance and lose out on a few week’s worth of growth than to be wrong, add risk to a portfolio and lose money because we couldn’t wait a few weeks.”
However, O’Brien adds that this doesn’t mean you should adjust your long-term plans because of the long, hot summer of 2011. “If we are planning for a long period of time, we have probably already factored in the uncertainty. This is akin to hearing that we might get rain on vacation—if you’ve planned appropriately, you already have something to do indoors.”
Stephen Madeyski, CFP, Albuquerque
In his July newsletter, Madeyski wrote: “We are rapidly approaching the date when the U.S. Government is going to run out of money again…Prepare for this day by anticipating problems with Federal Government services like airport delays (TSA), passport services and National Parks.”
Sounds serious. But what about my portfolio? “Once you have settled on a target asset allocation you are comfortable with,” he writes, “stick with it unless there is a major life change that necessitates changing the allocation (i.e. approaching retirement, marriage/divorce or substantial inheritance).”
So there you have it. Six professional financial planners, all with the same advice: don’t touch that dial. If your investments made sense for your situation before everyone started freaking out about the debt ceiling, they still make sense.
And that goes for the next big freakout, too.