- The Washington Times - Monday, October 7, 2013

Those in the business of planning ahead say there’s not much planning Americans can do over the next 10 days for the fallout if Washington’s warring factions can’t come together and avoid the first federal financial default in the nation’s history.

Financial planners contacted by The Washington Times say a default remains an unlikely outcome, but say if it does come to pass, ordinary savers should buckle up, because a big impact is unavoidable.

For individuals who have not planned substantially ahead of time, “salvation will not be found,” said Tim Maurer, a financial planner at Maryland-based Financial Consulate. “There is no magic pill to swallow when it comes to market certainty.”

Ameriprise Financial Adviser Eric Lantz admits that it is difficult to fathom a government default when it comes to considering what’s best for the individual investor’s portfolio.

“From my perspective, it’s hugely unlikely,” said Mr. Lantz, who works in Arlington. “It’s almost like saying, ‘What if the sun didn’t come up tomorrow?’ The whole world counts on us to make good on our promises.”

Still, financial planners recognize the role that unpredictability plays in every realm of finance. “Financial planning is contingency planning,” said Mr. Lantz. “Bad luck is going to happen.” He refers to it as the “certainty of uncertainty.”

Despite the potential financial implosion, individuals who have done the necessary planning can be confident as they gear up for the Oct. 17 deadline on the nation’s debt ceiling.

“The first thing I would tell individuals is to do absolutely nothing. … Inaction is part of your strategy,” said Mr. Maurer.

Mr. Lantz agrees.

“I would suggest that [a client] maintain their optimism that the future is going to be OK,” he said. “Over and over again, this country has seen a litany of disasters, and each and every time the country has come back stronger than before.”

The United States government has been in debt every year since 1835; however, it has never failed to pay its bills on time, although a previous down-to-the-wire showdown between President Obama and congressional Republicans in 2011 led to an unprecedented credit downgrade for the United States. This time is different for a second reason: The government has never approached the debt ceiling deadline in the midst of a federal government shutdown.

Mr. Maurer believes that a failure to raise the debt ceiling could mean two things for the average citizens’ finances.

“This could be an aberration, …but it also could be a triggering event,” he said.

If default were to take place, Mr. Lantz speculates that individuals are likely to make irrational financial decisions in the face of what analysts say would be significant disruptions to the global financial order. “When people get fearful, they get itchy trigger fingers,” said Mr. Lantz. “They get out of equities and get into fixed income and cash.”

Mr. Maurer encourages the prudent to remain calm amid the fiscal chaos. “This situation could be a reminder to those who have planned … to reallocate,” he said. “If you haven’t done it already, now is a great time to do that.”

Last week, the Association for Financial Professionals (AFP) released a survey measuring the amount of faith many financial executives have in the current economic climate. The report found that “the partial government shutdown and political wrangling over the debt ceiling [are] expected to result in reduced demand for goods and services. In addition, the inability to reach a long-term deal to resolve the budget deficit and debt ceiling issues has already caused organizations to be more hesitant in making investments in the U.S. tied to growth (e.g., capital investment, hiring) because of the unpredictable nature of Washington and the resulting challenge in evaluating investments.”

The report also concluded that Congress’ inability to raise the debt ceiling would have “direct impacts on short-term investment strategies and access to capital for a number of U.S.-based organizations.”

According to Mr. Lantz, “Managing budget to budget, or crisis to crisis is extremely counterproductive” for the government and for the average citizen.



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