What To Do After The US Debt Rating Downgrade
If you did not plan for the US debt downgrade by Standards and Poors (S&P) two to three weeks ago, then it’s already too late. Any actions that you take now, especially out of fear or panic, may make your situation worse. The market already reacted to it with almost 10% loss between Friday and Monday. However, there are things that you can still do to protect yourself. Here are 5 steps to take:
1. Review your entire financial portfolio and plan out strategies for upcoming possibilities. Your financial adviser should know what is going on with the market and have recommendations. If not, you need to research and make your own conclusions. There are 3 scenarios that you need to think about.
a. Rating downgrade stay as is.
b. Other rating agencies also downgrade the U.S. Debt. This would be Fitch and Moodys.
c. S&P downgrade the U.S. debt further.
Figure out how you want to plan for each situation.
2. Review your insurance companies if you have any life insurance or annuities. Several insurance companies have been downgraded, and more will be affected. Your adviser should already be doing this.
3. Review your debt. If the U.S. has to increase rate on our bonds, this will raise interest rates across the board for business and consumers. Adjustable interest rate loans will be more expensive. Make sure you have enough cash or liquidity to cover any extra interest expenses.
4. Review the company you work for. On top of the mass layoffs that has been announced, more may come. If companies experience higher costs due to increased interest expenses, there could be more layoffs. How strong is your company? Is it susceptible to any downturn in the recovery? Will your job be on the line? Be prepared.
5. Focus on doing what is right for you. Don’t be rushed or pressured by anyone, including your advisers, into buying or doing things you don’t understand. Use your common sense and do not react based on fear.
The U.S. debt downgrade is just one event among many ongoing things affecting world markets. Look at the big picture and pull out what would affect you.
For example, the U.S. trade deficit means that it is cheaper to ship cattle feed to China than it is to truck it across the U.S. This can mean higher prices in meat and dairy for restaurants or losses and layoffs in the dairy business. This should be just as important to factor in for those in the dairy and meat industries.
Investments strategies should be for both short-term and long-term basis. Plan for what your personal needs are.
© 2010 MoneyandRisk.com all rights reserved