If Congress does not choose to raise or extend, national debt limit, the United States may run out of funds needed to pay bills. With that deadline approaching as early as June 1, SmartAsset advises financial advisors on what they think will happen if the US defaults and how they should prepare their clients. I asked if
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nearly 90 advisors SmartAdvisor Matching Platform participated in the survey. Respondents commented on what they thought would be the biggest threat to investors if the government failed to meet its obligations. They also shared how investors can protect themselves against a possible US debt default.
What Happens If the U.S. Defaults, According to Financial Advisers
Chosen by approximately 66% of financial advisors stock market volatility A US government default is one of the biggest risks for investors and one of the biggest potential consequences. recently, Economists and analysts point out Falling equity markets and skyrocketing interest rates as a result of defaults could disrupt US and global financial markets.
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“It will hurt municipal bond investors and stock and bond holders in the banking sector,” said one financial adviser. Investors in these sectors could feel the impact, especially if the government struggles to pay back bond investors and Americans lose confidence in their banking institutions.
46.43% of respondents said the second biggest concern was a US Treasury downgrade. A US sovereign debt downgrade could affect government-backed investors such as: bonds And above all, it affects how foreign investors view the safety of US-backed investments. Moreover, he was selected by 40.48% of participants as a potential possibility. recession As a potential default result. recession Risks range from high unemployment to plummeting stock prices.
How can investors protect themselves against a possible US debt default?
In the survey, 44.05% of financial advisers recommended “getting through” as a way to protect against U.S. debt defaults, making it the most common response. While this may sound like a hands-off approach, some advisers noted that the right assets are key. Diversificationproper allocation and a long-term view can help investors weather short-term economic upheavals.
Advisors also pointed to strengthening financial safety nets and good financial management as strategies to prepare for potential defaults. Such moves may help investors prepare to weather the economic fallout of a default. Among the survey respondents, 42.86% said they would “reduce living expenses” and 34.52% said they would “save more cash”.
Will the U.S. government default?
The US reached its $31.4 trillion debt ceiling earlier this year. Since then, the Treasury Department has taken “unusual steps” to meet its payment obligations, including suspending investments in certain government funds. But Treasury Secretary Janet Yellen warned that those measures could run out as early as early June. Meanwhile, in the Capitol, politicians are debating whether and how to cut spending or raise revenue.
No financial adviser, politician or political commentator has a crystal ball, but a debt default would undoubtedly be a momentous event for US markets.Some worry that the government will default on payments social security beneficiary, Veterans Benefits and other federal programs. Some say the event could wreak havoc on financial markets and plunge the United States and other countries into financial crises.
financial advisor They focus on stock market volatility and the large-scale impact of a potential US debt default. They point to good financial management, such as saving, cutting spending, and using good asset allocation, as a way for people to protect themselves in the event of default.
The survey data for this report was collected by SmartAsset between March 29, 2023 and April 12, 2023. SmartAsset asked financial advisors the following questions:
“What is the biggest risk to investors if the government defaults?” “How can investors protect themselves against the possibility of US debt default?”
Of the advisors surveyed, 84 responded to these questions.
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