How to Invest for US Default

National-Debt-Clock

National Debt Clock, in Manhattan, New York City

I’ve heard the question several times now; How to invest for the US default on August 2?

Whether or not the US cannot raise the debt cieling and defaults isn’t the right question. As James Kostohyrz (Miyanville.com) asks, “Given the risks involved, do you really need to be invested right now?”

His conclusion?

You don’t have to…

In one sense, I agree. Unless you are protected for all outcomes, sitting on the sidelines is the safest bet. As James mentions, the opportunity costs are really low, with regard to being out of the market in the near term.

That said, I do not think that it is wise to sell every investment you’ve made. For example, lets think about retirement accounts (i.e. 401k, 403b, IRAs, etc.). For my retirement accounts, I use a set of rules that tolerate larger price movements, because the accounts are a long-term investment. I am not doing anything special because of the upcoming default, because it is a short-term event.

That said, I will still obey my rules; the outcome of the US Debt “crisis” won’t directly influence my actions. The same holds true for my short-term holdings. My rules dictate my actions…I will just watch them a little more closely than normal.

Sources:
How to Play the Risk of US Debt Default
Minyanville – James Kostohyrz
http://www.minyanville.com/businessmarkets/articles/sotck-market-economy-macroeconomics-debt-ceiling/7/27/2011/id/35962

Advertisements
This entry was posted in Current Events, Investing and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s