Tags: retirement | cash | shutdown | default

Despite Washington's Antics, Retirees Should Remain Calm . . . But Have Cash

By    |   Tuesday, 15 October 2013 10:04 AM

Many retirees and people approaching retirement are getting nervous about the ongoing shenanigans in Washington. The best thing they can do is to remain calm and avoid gutting their portfolios, advisers say.

Some retired people view the shutdown as a time to book profits from this year's stock market gains and head to the sidelines, Andrea Blackwelder, president of Wisdom Wealth Strategies, tells MarketWatch.

She said this is not a strategy she advocates for everyone, but she is urging clients to move toward an investment approach that provides them with access to enough cash to withstand several months of turmoil.

Editor’s Note:
5 Phases of a ‘Retirement Heist’ Exposed (See Video)

Financial experts admit the government shutdown could produce volatility, but they expect negative effects on the stock market to be fairly short-lived, as long as Washington's antics don't drag on.

Investors should "just take a deep breath" and "think twice" about any quick reactions they might be planning, Steve O'Hara, principal with CLA Financial Advisors, tells MarketWatch.

O'Hara points out that between the mid-1970s and the mid-1990s there were 17 government shutdowns totaling about 110 days when the government was shuttered.

"And none of those shutdowns had any significant impact on the market," he notes.

Though he believes investors should hold tight for the most part, he agrees that in cases when people need to liquidate stocks for cash, "now is probably the time," because clearly, there's downside risk if the battle drags on.

Sam Stovall, chief equity strategist at S&P Capital IQ, agrees that a prolonged battle "will likely take its toll in a cascading fashion." But he also says selling now may not be in investors best interest.

In recent writings, Stovall has argued that positive stock market performance in September historically foreshadows fourth-quarter gains, according to MarketWatch.

For instance, he points out, the shutdown from Dec. 16, 1995, to Jan. 6, 1996 resulted in a 3.7 percent peak-to-trough decline in the S&P 500, but the index rose 10.5 percent in the subsequent month.

Meanwhile, people should not ignore that possibility that the shutdown could give way to bigger problems sparked by the federal debt default.

Possible consequences include a bear market in stocks, a possible interruption of government payments such as Social Security and Medicare reimbursements, and substantial losses in bonds, according to CNBC.

Though reality isn't likely to be so harsh, it could still be a disruptive event, and professionals warn now is the time to protect oneself.

"People need on an individual basis to continuously reduce their personal levels of debt," Julie Murphy Casserly, president of JMC Wealth Management, tells CNBC.

"People today for the most part don't have adequate short-term buckets to move through stuff like the things going on in Washington," she adds.

CNBC reports Casserly and other financial pros encourage a five-part protection plan that consists of: 1) holding adequate cash levels; 2) not panicking; 3) rebalancing; 4) taking a global investment perspective, and 5) buying downside portfolio protection.

Editor’s Note: 5 Phases of a ‘Retirement Heist’ Exposed (See Video)

Related Stories:

Princeton's Singer: Founding Fathers Responsible for Shutdown

Citi's Buiter: Washington 'Like the Land of Oz'

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Many retirees and people approaching retirement are getting nervous about the ongoing shenanigans in Washington. The best thing they can do is to remain calm and avoid gutting their portfolios, advisers say.
retirement,cash,shutdown,default
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2013-04-15
Tuesday, 15 October 2013 10:04 AM
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