Raise the Debt Ceiling or Default?

  by Tyler Curtis

President Ronald Reagan stated in 1983, “The full consequences of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate.”

On Aug. 2, the U.S. Treasury will no longer be able to pay our nation’s obligations. Congress is at an impasse, essentially faced with two immediate choices: raise the debt ceiling or default.

Neither is an acceptable solution, and with this looming deadline, both sides of the table are working under enormous pressure to bring about some positive changes in fiscal policy. Still, the wide division between the House of Representatives and the Obama administration has created a great deal of uncertainty, which leaves us all justifiably concerned.

We always strive to position ourselves as a resource to provide valuable information and discuss the issues that are most important to you. Although this crisis du jour is certainly concerning to us, we feel it is just that – the hot-button issue of the moment. There will always be something making the news headlines. Yesterday, it was soaring food and energy prices. Today, it happens to be the nation’s debt and deficit. Who knows what the media will harp on tomorrow.

Whenever news comes out of Washington, we can reasonably expect volatility in the markets. Many investors associate volatility with a declining market, but the truth is that we do not know exactly what direction things will go, nor can we predict the magnitude of the swings. It seems that uncertainty has become a constant companion in the 21st century, but when it comes to our investment strategy, we stick to what we know.

We hold fast to our investment philosophy through the good times and the bad, the steady and the volatile. And what we know is this:

– No one can consistently and correctly time the market.
– The Snider Investment Method® is a long-term strategy, designed to sustain 30 or more years of retirement in a broad range of economic conditions; therefore, we do not make short-term tactical moves.
– Fear and greed cause investors to make irrational and often destructive investment decisions. We stick to the rules of the Snider Method regardless of the “noise.”
– Volatility is a necessary component of an investment strategy that is designed to produce a reasonable reward. It is the risk-return tradeoff that most investors must make in order to meet their objectives.

We don’t know what’s going to happen in the weeks to come. Democrats and Republicans might reach some sort of compromise. Government may shut down. We might miss a few payments. Or, we might just raise the debt ceiling like we have nonchalantly done over the last couple decades. We can speculate like the rest, but at the end of the day, that’s all it amounts to – speculation.

The uncertainty surrounding the country’s debt problem and the resulting volatility have begun to stir investors’ fears. While it’s human to feel fear, it is imperative that you do not give into it or act upon it. Fear is actually an ally of the long-term investor. For those who can manage their emotions and hang tight, therein lies huge potential to capitalize on the aftereffects of the panic selling that can ensue by those who aren’t as steadfast.

The optimum response to fear and the issue du jour – no matter what it may be – is to ignore the hype, recognize a means for great opportunity, and stick to your long-term investment approach.

And remember: this, too, shall come to pass.

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