Scared out of your wits by the US government shutdown and ongoing US debt ceiling talk yet?
If you’re referring to the whole circus as “the looming US debt apocalypse” you might want to flick off the TV, radio and internet and go for walk to get some fresh air.
I don’t know if imminent financial doom is coming, as I don’t have a working crystal ball, but neither do the people who are peddling the worst case scenarios right now.
History suggests if financial markets were genuinely concerned a solution wouldn’t be found, they’d already be 10% lower at this point.
As with all politics, bluster and bravado will likely persist until the bitter end when tails quickly go between legs, deals are rapidly cut and both parties subsequently emerge to claim a moral victory.
If you’re still wondering, “should I sell everything and bury it in a biscuit tin?” every time the media talks of a potential crisis, you may need to revisit the old risk and return relationship.
In this instance you probably need to be holding more defensive assets to calm your fears.
Ensuring you have cash on hand so you never need to liquidate investments at the worst possible time is also a good strategy.
The flipside is you need to be happy to accept a lower return when share markets are raging and a greater proportion of your assets remain defensive.
Ironically, I’ve always found the people who are the most vocal about taking no risk are also the most vocal when their returns are lower because they have lower share market exposure!
Finally, what was the investment response to the previous potential US disaster in August 2011 – the combined debt ceiling wrangling and S&P downgrade of US government debt?
Had you invested in a balanced portfolio as those events were reaching crescendo it would have returned an annualised 12.77% per annum in the following two years.
Hardly the apocalypse it was made out to be.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Searching for the top financial adviser in Australia?
