Personal finance: Weathering the shutdown

The government shutdown alone may have little impact on your investments, said Adam Shell in USA Today. In the 11 shutdowns since 1981, the Standard & Poor’s 500 index “barely budged.” The stock market is likely to shrug off this one as well—as long as the stakes aren’t raised further. “The bigger risk would be if Congress fails to raise the debt ceiling” before the end of the month. That could trigger a credit-rating downgrade like the one that followed the last big debt-ceiling battle. In the summer of 2011, Standard & Poor’s stripped the U.S. of its favored AAA rating, and as a result, “the S&P 500 cratered 19 percent.” With a similar threat looming ahead, the market’s “mood is growing darker,” said Nathaniel Popper in The New York Times. Investors are spooked that the government could be forced to default on its bills—triggering a meltdown that could not only torpedo stock values but also devalue the dollar, drive up interest rates, and freeze credit markets.

That’s why “lowering exposure to stocks, both long and short, is a good idea,” said Michael Kahn in Barrons.com. Even though the market hasn’t collapsed, we are seeing a worrisome downward trend for the U.S. dollar, “which does not bode well for confidence in the U.S. itself.” This is the time to drop declining stocks and hold onto cash, “even at virtually zero interest rates.”

Yet as in any financial fiasco, there are also opportunities here, said Rashmi Singh in Fool.com. If we see a sell-off of shares by frightened market players, “value investors could be offered interesting bargains in great companies.” Fundamental U.S. market prospects, after all, are generally good, with analysts predicting strong corporate earnings growth of more than 9 percent for the last quarter of the year. That gives me reason to believe that, whatever the politicians do, “now is a good time to invest in great companies.”

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The hit on your finances “depends on your unique circumstances and how long the shutdown lasts,” said Shirley Pulawski in HuffingtonPost.com. Americans trying to complete a home sale might be stalled by the halt in the Federal Housing Administration’s loan program, and “furloughs at the Internal Revenue Service could eliminate access to records required” for some transactions. But as long as the U.S. government is facing only a shutdown rather than a far more serious default, it will still be issuing checks for those receiving disability, Social Security, and unemployment payments. “In the short term, most people who are not furloughed government employees” won’t take a direct hit. But if it goes on, “some effects of the shutdown could eventually prove costly or ruin plans.”