By Jeff Sommer, The New York Times, 1/19/2023
Even in a crisis, I buy and hold diversified investments in the global stock and bond markets, preferably through low-cost index funds. That’s a well-tested approach for long-term investing. It makes sense as long as you are able to withstand market turbulence and hang on for decades. [That’s a great strategy for someone who is working and won’t need to touch their investments for decades. – W]…
Bizarrely, since World War II, after every previous debt ceiling crisis — and, indeed, whenever markets have panicked — investors around the globe have typically flocked to the U.S. Treasury market as a safe place to park their money…
At a minimum, as an investor, you will want to be prepared, with ample cash holdings. You may want to move some money to the safest places, like government-insured bank accounts. Because a debt ceiling crisis could set off severe market declines for a while, it would be wise to soberly assess your ability to bear losses. If you know you can’t handle them, reduce the risks you are taking well before you start reading about imminent market disruptions…[end quote]
“Imminent” appears to mean the day before “The X date,” as it is being called — the absolute, no-kidding, deadline for the lifting of the current $31.4 trillion debt limit — which is expected to arrive sometime in the second half of 2023. Given the market’s flightiness it’s likely that some participants would literally hang on until the last second.
The Federal Reserve already discussed (internally) ways to handle a U.S. Treasury default. The Fed could buy defaulted bonds but that’s a step further than even Quantitative Easing and Fed chair Jerome Powell has called that “loathsome.” I love that word – loathsome – because it leaves no doubt that the Fed would only do it in the event of a complete market collapse.
I don’t have decades to wait for a popped market bubble to recover or a crashed mutual fund to retrieve its NAV. I don’t expect to live that long. I want my money to hold its value for when I need it within the next, say, 1 to 10 years.
Cash in bank accounts is safe. It’s insured by the FDIC. Some FDIC-insured banks are actually offering decent interest.