Debt ceiling: 10 reasons not to move your money now

July 28, 2011
With the markets getting more and more nervous as the days tick by to August 2 without a debt deal, one thing that might be keeping the bottom from falling out is the calm of financial advisers. To borrow from former President George W. Bush, they are urging clients to “stay the course.” And behold, they cite many sensible reasons for doing so.

Reuters Money reached out to members of the financial community to see how they’re calming the folks they advise. An overwhelming majority expressed faith that lawmakers would broker a deal by the deadline, and markets would adjust regardless.

Here are 10 reasons they give not to juggle your investments right now.

1. A short-term crisis demands long-term thinking.

While it’s true a debt ceiling crash might resemble the sky falling, no one knows if that’s going to happen. Markets reward investors who stick to sensible strategies over time. “Rather than obsessing about the debt debate, we are telling clients to get engaged in a long-term conversation about risk management,” said Michael Gault, senior portfolio strategist at Weiser Capital Management. Gault, who manages $200 million, stressed that the last few months on Wall Street have been good ones. “The concept of ‘risk’ has taken a back seat as the markets’ recovery has been in a relatively smooth upward trajectory. We think there’s tremendous value in rebalancing here.”

2.  Smart investors adjust to market fluctuations, not political grandstanding.

“We’re telling clients that what is happening in D.C. is primarily political positioning,” said Mackey McNeill, CPA, PFS, and the principal of Mackey Advisors in Covington, Kentucky. McNeill manages $45 million, “mostly with Boomers,” and noted, “We continue to hold asset allocations based in the client’s plan. As asset classes respond to the market, we will take advantage and rebalance. We believe and have seen that trying to time the market in any environment puts clients money at undue risk.” The reckless ones, he thinks, are those gambling with political capital: “We also have encouraged via social media that this is a call for election reform.”

3. Cash reserves make for a strong defense.

While no one’s about to advise knee-jerk moves to turn portfolios into currency for stuffing a mattress, investors with solid cash reserves should sleep soundly through the throes of the crisis. “A good starting point is having enough to cover at least six month’s worth of living expenses,” said Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank. “This will help investors manage short-term uncertainty without derailing their long-term investment plan. … Wells Fargo encourages knowing your ‘number,’ the amount of cash or cash equivalent holdings that will help you meet anticipated cash flow needs during difficult market conditions.”

4. Probability of government default remains low.

Despite the headlines and dire forecasts you may have read elsewhere, the chances of an all-out government default remain low, according to a July 27 market update issued by PNC. In it, Chief Investment Strategist E. William Stone and his team state that measures by the U.S. Treasury could extend debt payments past the Aug. 2 deadline, or use incoming revenues as a temporary stopgap to prevent default: “It is our view that Congress will use this time created by payment prioritization to agree on a compromise plan. This lends weight to our opinion that there is a low probability of a technical default on U.S. Treasuries or on other government obligations.”

5. The experts still trust proven defensive strategies.

The defensive approach to investing involves more than just cash reserves. “We’re focusing on investing in large-cap multinational firms with strong balance sheets, good free-cash-flow — and that pay a dividend currently greater than the 10-year Treasury,” said Oliver Pursche, president of Gary Goldberg Financial Services, based in Suffern, New York. “In our view, these companies, when paired with commodities as well as short-term to intermediate-term bonds, present a superior investment allocation that has historically performed very well in up markets and displayed significantly less down-side volatility in poor markets.” The bottom line? “Historically, our portfolios have had 80 to 85 percent of up capture and roughly 60 percent of down capture.”

6. There’s wisdom in waiting out the storm before investing anew.

With so much riding on the debt ceiling negotiations, what if Washington extends talks over the Aug. 2 deadline? Markets could turn volatile, and, if so, it makes sense to hold off on new investment. “We are recommending clients not commit any new capital to the markets until this is resolved,” said R. Thomas Manning, Jr., president and chief investment officer at Silver Bridge Advisors, a Boston-based wealth management group. “As a firm, we have not made any additional changes to our asset allocation policies directly in relation to these issues.”

7. It’s more than just the debt ceiling.

Those watching the market closely point out other reasons for concern and that fixation on the debt ceiling may cause an otherwise smart investor to take an eye off the ball.  “We are more defensive in recent months than we had been previously, but that is primarily because of the debt problems in Europe, not the U.S.,” said Stephen A. Smith, vice president and chief investment strategist at the Whittier Trust Company in South Pasadena, California. “We have advised clients to maintain their normal strategic exposures to the U.S. stock market … and have moved client cash out of money market funds with exposure to European banks.”

8. We’ve been here before. (Sort of).

For all the talk of “uncharted waters” spouted by politicians and pundits, the financial meltdown of 2007-2008 was a true, treacherous tsunami of market upheaval. When a shattered real estate bubble and malaise from the Great Recession compounded things, many wealth managers buckled down and turned especially vigilant. The smart ones still have that stance, yet know not to overreact, said Douglas Eaton, president of the Eaton Financial Group in Coral Springs, Florida. “In reality most crises, such as these, are exacerbated … and just like Y2K and H1N1, they turn out to be much less horrific than [predicted]. … As I have done for many years, I try to beat the bad news home. ”

9. Alert investors see opportunity where others see calamity.

While many wealth managers suggest sitting tight while markets are upheaval, a period of calm after the storm could reveal some bona-fide bargains. “We’d plan to be opportunistic if a sharp sell-off occurs,” said David S. Robinson, CFP and president of Robinson, Tigue, Sponcil & Associates Private Wealth Management in Phoenix, Arizona. “Even if August 2 passes without a solution, the debate will continue and an eventual compromise is likely. So for equities, the ‘noise’ in Washington should prove to be just a short-term distraction. We’d continue to focus on the fundamental drivers of share prices, including earnings, valuations and interest rates. These remain constructive.”

10. Diversify, good; diversions, bad.

Across the board, wealth managers favor a proactive rather than reactive stance. And sometimes the most proactive thing an investor can do is sit tight while others lose their grip on reality. But if you’re moving at all in these nervous days, make sure your portfolio has a healthy, diversified spread — and reach for the earplugs when you hear screaming pseudo gurus predicting Panic on the Street. “We are just making sure our clients stay diversified and invested for the long-term,” said David Peterson, founder and president of Peak Capital Investment Services, a financial services firm in Dallas and Denver responsible for $700 million in assets. “We tell them, ‘Don’t let the markets steer you.’ It’s more important to have enough money to last you the rest of your life and if you chase the markets, you’ll go broke.”


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The real reason people aren’t moving investments has nothing to do with advisors, it is simple, if the US defaults, nothing is safe. Where are you going to move investments – to CD’s? – backed by the full faith and trust of the Federal Government. HA!

Posted by minipaws | Report as abusive

Well, it’s probably wise to just sit at this point, especially if you’re not a student of the markets.

However as a long time (many decades) former investor and student of economice, I began systematically eliminating both equity and bond exposure a couple of years ago.

Briefly I see the US central bank backed into a corner. Trillions have been spent, or created since 2008 with little effect save the propping up of asset prices. Interest rates have been supressed far below what would “normally” be the case by coordinated central bank actions.

Sooner or later the US and the western world must face the fact that we cannot borrow and deficit spend our way out of this terrible economic situation that we have created. Spending must fall and taxes must rise.

When I began the study of economics in the 1970’s we were taught the definition of the dicipline:

“Economics” we were told, “is the study of meeting mankinds unlimited wants with limited resources”.

Modern economists seem to have forgotten the “limited resources” part of the equation.

Sooner or later the bond market will remind them, and the equity markets will follow.

So, maybe risk off is the best path to follow.

Posted by Missinginaction | Report as abusive

Most of these reasons are as unsubstantial as this one: “Don’t move your money because if you did, you would be stupid.” That’s not a reason. And you don’t have to come up with an even 10 of them. It’s ok to have six. And if you only had six, you’d have some room for some cons: why it DOES make sense to pull your money. For instance, “We’ve been here before (sort of)”: this looks a lot like July, 2008, only more volatile. An article showing 10 pros and no cons sounds like a sales pitch.
But thanks for trying to prevent a crisis, anyway.

Posted by ajCallao | Report as abusive

Regarding item number 1, this statement is absolutely true but it doesn’t apply in this situation. What in the world makes anyone think this is a short term crisis? I moved my retirement money to cash just before the end of QE2 due to long term downside factors. I missed some temporary upside but my money has been mostly safe. I’m waiting it for a new bottom before going back in.

The last time I moved my money out of stocks was a move into bonds in October of 2007. I stayed out of stocks too long that time, but still managed my money better than the mutual fund guys on Wall Street.

This time, bonds aren’t even safe in my eyes. With inflation and currency devaluation, neither is cash, but the money has to go somewhere.

I’m hoping for a sharp, deep drop so I can quickly move back into whatever stock sector seems to be doing the best in the next recession/depression.

Posted by breezinthru | Report as abusive

Yeah, and just yesterday an investment adviser in our group told a friend that if he’s so hot to get out, now’s the time, not after another tank.

Like breezinthru I got out before the crash and I’m still ahead. Get in or out based on your personal situation, not on some wonk’s say-so.

Posted by AllForLight | Report as abusive

A patronizing list of reason from our betters. Of course the real reason is that the millionaires and billionaires that run the financial system need the money of all us poor slobs to stay wealthy.

Posted by johnnyjr | Report as abusive

Each crisis comes and goes, but actual wealth, as to relevative ranking of households, doesn’t disappear so easily by mere Congressional inaction, except for that of government employees who get let go and are rarely wealthy.

Since the early 1980’s, wealth has continued to become more concentrated with the compensation share of the GDP declining. Even during the housing crisis, the relative wealth of the rich has decreased far less than that of the average American. This creates two problem:

1) The richest Americans do not consume goods and service in proportion to their share of wealth, but rather much less because it is the game of creating wealth by which they measure themselves, or as one billionaire said, it is the mere millionairs that have to worry about taxes.

2) The amount of highly mobile wealth globally has grown too great and it provides the money by which speculation brings down nations, and the United States is no longer invulnerable to becoming a victim. Military power does not translate into economic power, but rather economic power makes military power possible. After all it took only one rich speculator, George Soros, to bring down the Bank of England.

Do not look to the Federal Reserve Bank for salvation. It too is part of the U. S. Government and in fact derives part of its income from the interest paid on U. S. Treasury debt, although it does return its profit after expenses to the U. S. Treasury at least annually.
(In contrast, the regional Federal Reserve Banks are government organized private businesses, unlike the national Federal Reserve Bank.)

Posted by SeniorMoment | Report as abusive

use your own judgement, The investment advisor always says the same thing “don’t move your money” even as your money titanic sinks under the waves.

Posted by Dave1968 | Report as abusive

Obviously, this article forgot to ask Peter Schiff’s opinion.

Posted by migachoedu | Report as abusive

In Reason #8: I think the quoted word “exacerbated” was meant to be “exaggerated” instead.

Posted by Yowser | Report as abusive

In Reason #8: I think the quoted word “exacerbated” was meant to be “exaggerated” instead.

Posted by Yowser | Report as abusive

A short term crisis does indeed require long term thinking, but I’m not at all convinced this is a short term crisis.

Posted by breezinthru | Report as abusive

[…] Debt ceiling: 10 reasons not to move your money now […]

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