If Congress doesn’t choose to raise or extend the debt ceiling, the U.S. may not have the funds it needs to pay its bills. With that deadline approaching as early as June 1, SmartAsset advises financial advisors on what they think will happen if the US defaults and how they should prepare their clients. I asked if
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Nearly 90 Advisors from the SmartAdvisor matching platform participated in the survey. Respondents commented on what they thought would be the biggest threat to investors if the government failed to meet its obligations. They also shared how investors can protect themselves against a possible US debt default.
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What Happens If the U.S. Defaults, According to Financial Advisers
Nearly 66% of financial advisors cite stock market volatility as one of the biggest risks for investors in the event of a U.S. government default, and the greatest risk of potential impact. It’s becoming Recently, economists and analysts have pointed to falling stock markets and skyrocketing interest rates as consequences of a default that could roil US and global financial markets.
“It will hurt municipal bond investors and stock and bond holders in the banking sector,” said one financial adviser. Investors in these sectors could feel the impact, especially if the government struggles to pay back bond investors and Americans lose confidence in their banking institutions.
46.43% of respondents said the second biggest concern was a US Treasury downgrade. A downgrade of US government bonds could affect government-backed investors such as bonds and affect how foreign investors perceive the safety of US-backed investments. Additionally, 40.48% of her participants chose the possibility of a recession as a potential default outcome. A recession carries a wide range of risks, from high unemployment to plummeting stock prices.
How can investors protect themselves against a possible US debt default?
In the survey, 44.05% of financial advisors recommend ‘Navigating’ as a way to protect against a US debt default, making it the most common response. While this may sound like a hands-off approach, some advisers believe that proper asset diversification, proper allocation, and a long-term perspective can help investors navigate short-term economic upheavals. pointed out that it may be useful for
Advisors also pointed to strengthening financial safety nets and good financial management as strategies to prepare for potential defaults. Such moves may help investors prepare to weather the economic fallout of a default. Among the survey respondents, 42.86% said they would “reduce living expenses” and 34.52% said they would “save more cash”.
Will the U.S. government default?
The US reached its $31.4 trillion debt ceiling earlier this year. Since then, the Treasury Department has taken “unusual steps” to meet its payment obligations, including suspending investments in certain government funds.
But Treasury Secretary Janet Yellen warned that those measures could run out as early as early June. Meanwhile, in the Capitol, politicians are debating whether and how to cut spending or raise revenue.
No financial adviser, politician or political commentator has a crystal ball, but a debt default would undoubtedly be a momentous event for US markets. Some worry that the government will fail to pay recipients of Social Security, Veterans Benefits and other federal programs. Some say the event could wreak havoc on financial markets and plunge the United States and other countries into financial crises.
Financial advisers are eyeing large-scale effects from stock market volatility and a possible default on U.S. debt. They point to good financial management, such as saving, cutting spending, and using good asset allocation, as a way for people to protect themselves in the event of default.
The survey data for this report was collected by SmartAsset between March 29, 2023 and April 12, 2023. SmartAsset asked financial advisors the following questions:
“What is the biggest risk for investors if the government defaults?” “How can investors protect themselves against the possibility of US debt default?”
Of the advisors surveyed, 84 responded to these questions.
Tips for investing during market volatility
- One of the benefits of working with a financial advisor is that you have someone whose objective analysis can help soften the investor’s emotional reaction to economic uncertainty. Finding a qualified financial advisor is not that difficult. SmartAsset’s free tool matches you with up to 3 financial advisors serving your area and allows you to meet with advisors for free to determine which one is right for you. increase. If you’re ready to find an advisor to help you reach your financial goals, start now.
- SmartAsset’s free asset allocation calculator makes it easy to estimate the best way to adjust your investment portfolio given your timeline and risk profile.
Questions about our research? Contact [email protected].
This post, “Financial Advisors Reveal How Investors Should Prepare for Potential U.S. Debt Default – 2023 Survey,” was first published on the SmartAsset Blog.