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How Should Investors Respond to the Government Shutdown and Debt-Ceiling Concerns

Seth Jentner10/14/2013

The stock market rallied recently once there was a sense that lawmakers may be moving toward an agreement to increase the debt ceiling and avoid default.

Concerns over the news out of Washington D.C. motivate some investors to move in and out of their investment holdings. Others want to be strictly in cash. Some feel anxiety over the partial government shutdown and the debt-ceiling limit. Others, like me, are gravely concerned over the increasing size of government and its inability to live within its means.

The stock-market rally is a great example of the difficulty and danger of investing based on Washington politics. Let's look at some of the facts:

  1. Yes, market volatility has increased since the October 1 government shutdown began.
  2. However, the shutdown prohibits discretionary government spending but does not prohibit mandatory spending and debt service.
  3. Since the start of the shutdown, the stock market has cumulatively been essentially unchanged.
  4. As reported in Time, “Stocks have risen during past government shutdowns.”
  5. The average shutdown lasts about 5 days and … historically, the market usually responds with an … increase over the next six months.

Perhaps you should ask yourself a question? What is your timeframe for your investment portfolio?

If it is relatively short, why would you even want to be in the stock market at all?

If it is long term, why does it matter if there are short-term fluctuations?

The markets face a lot of uncertainty year after year. Time and time again, it manages to get off the mat and recover. Investors who have maintained a diversified portfolio while employing a disciplined strategy have earned competitive returns over the years. Do you think this is going to change?

Remember the advice of Sir John Templeton, founder of the Templeton Funds, “The four most dangerous words in investing are ‘This time it’s different.’”

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