- As federal debt ceiling negotiations intensify and the “X-date” nears, investors are bracing for an economic downturn.
- Here are some tips for nervous investors as the deadline approaches, according to financial advisors.
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Preston Cherry, a certified financial planner and founder and president of Concurrent Financial Planning in Green Bay, Wisconsin, said the debt ceiling has led to a “pile of anxiety” among investors with existing financial worries.
That restlessness may be greater among retirees, those nearing retirement and Gen Xers facing a retirement savings gap, said Cherry, who is a member of CNBC’s Financial Advisors panel.
While it’s hard to predict how the stock market will respond to the upcoming debt ceiling negotiations, experts have tips for investors.
When facing market volatility from events like the Russia-Ukraine war or the debt ceiling standoff, it’s important to avoid “emotional selling,” Cherry said, especially when the market is falling. “These events happen,” he said. “So we want to help alleviate the emotional and financial consequences.”
These events happen, so we want to help alleviate the emotional and financial consequences.
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According to Lee Baker, CFP and owner of Apex Financial Services in Atlanta, one reason emotional selling can be so damaging is that investors may be reluctant to re-enter the market.
“They’re waiting for the market to go back up when they’re comfortable again,” and they’re missing out on the recovery, said Baker, who is also a member of CNBC’s Council of Financial Advisors.
In fact, the stock market’s 10 best-performing days from 2002 to 2022 occurred after major declines during the 2008 economic crisis or the 2020 volatility caused by the Covid-19 pandemic, according to a JPMorgan analysis.
“In the grand scheme of things, I guess [the debt ceiling] It’s going to get better,” Baker said. “A decade ago, it was ugly for a time. But we clearly bounced back well.”
One of the silver linings of market volatility is the opportunity to buy more assets at lower prices, assuming you’ve already met other financial goals. “Everybody likes a good sale,” Cherry said, adding that a 10% to 15% drop would be a solid buying opportunity.
Baker is looking at a decline of about 10% to “deploy new capital” by holding cash in a floating-rate Treasury exchange-traded fund that can be sold quickly if needed. “If there’s a tumble, we’ll get some stuff at a cheaper price,” he said.
While it can be tempting to buy properties at a discount, it’s also important to look after your money.
According to a recent CNBC/Momentive survey, most Americans are unprepared for a financial emergency. More than half of Americans don’t have an emergency fund, and 40% have less than $10,000, the survey showed.
While experts generally recommend having three to six months of living expenses in cash, others may recommend significant reserves depending on how long unemployment lasts.
Retirees also need cash, and may need liquidity to avoid selling assets when the market drops. Known as the “line of return risk,” research shows that tapping your portfolio during a market downturn can do long-term harm to your nest egg.
“You need to have a few months of reserves to get through these periods,” said Baker, who advocates keeping at least 12 months of portfolio distributions in cash.