financial experts: IF the debt ceiling talks fail; what effect will this indcecision have on 401-K balances?

  • rnch

    Posts: 11524

    Jul 14, 2011 12:32 PM GMT
    although my federal civil service 401-K (thrift savings plan in federal speak) is diversified into several different investment plans, the majority is now in the C fund, AKA the common stock fund.

    i'm wondering/worried/concerned about what will happen to the stock market if the dems and gop's can't get their shiote together.

    your opinions/insight, please.




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    Jul 14, 2011 1:29 PM GMT
    You know my biases, but here are some thoughts - and you can read up on them yourself but realistically I don't think anyone really knows what would happen and I have my doubts that either the Obama Administration, Geithner or the Republicans would let the US default on debt (because it's not so much the debt ceiling that is the concern - it is the implication that if the debt ceiling isn't raised that the US will default on its debts):

    The positive: http://finance.fortune.cnn.com/2011/07/14/five-reasons-to-be-bullish-on-stocks-yes-bullish/ (stocks are currently historically cheap)

    The bottomline of why the Republicans have taken on this fight: http://www.bloomberg.com/news/2011-07-14/too-much-debt-means-economy-can-t-grow-commentary-by-reinhart-and-rogoff.html (the unsustainability of debt)

    Why the debt downgrade was a matter of time irrespective of the debt ceiling:
    http://legalinsurrection.com/2011/07/we-already-were-headed-for-a-downgrade-because-of-too-much-not-too-little-debt/

    The "other side" - why politicians shouldn't mess with the debt limits, bearing in mind of course that Gross also argued for massive spending/banking bailouts:
    http://www.washingtonpost.com/opinions/warning-to-washington-dont-mess-with-the-debt-ceiling/2011/07/12/gIQA5Q4ADI_story.html
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    Jul 14, 2011 1:54 PM GMT
    OK, so if it's easy to transfer the bulk to bond funds at least temporarily, is that a good option?
  • rnch

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    Jul 14, 2011 1:57 PM GMT
    1969er saidOK, so if it's easy to transfer the bulk to bond funds at least temporarily, is that a good option?




    thinking of doing exactly that; moving the balance out of the common stock fund...."just in case".
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    Jul 14, 2011 1:59 PM GMT
    rnch said
    1969er saidOK, so if it's easy to transfer the bulk to bond funds at least temporarily, is that a good option?

    thinking of doing exactly that; moving the balance out of the common stock fund...."just in case".

    Right--could always switch back once we think it's hit bottom. I'll still be contributing (buying), so I'd be buying low at least at that point again.
  • rnch

    Posts: 11524

    Jul 14, 2011 2:00 PM GMT
    1969er said
    rnch said
    1969er saidOK, so if it's easy to transfer the bulk to bond funds at least temporarily, is that a good option?

    thinking of doing exactly that; moving the balance out of the common stock fund...."just in case".

    Right--could always switch back once we think it's hit bottom. I'll still be contributing (buying), so I'd be buying low at least at that point again.





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    Jul 14, 2011 2:15 PM GMT
    1969er saidOK, so if it's easy to transfer the bulk to bond funds at least temporarily, is that a good option?


    Bonds would be the worst possible option. If the US in fact defaults, interest rates will shoot up, and therefore the underlying asset value of a bonds will fall in order to compensate (so that the implied interest - actual + yield to maturity = the market interest rate).

    Worse, the US dollar would likely also fall. You would be better off buying foreign bonds or some type of asset like gold. Given that the US has represented the "risk free" interest rate for the world, money will likely end up flocking to gold though I am unconvinced that gold is a good standard to have given that it really doesn't have any real intrinsic value.
  • rnch

    Posts: 11524

    Jul 14, 2011 2:17 PM GMT
    i also would avoid the bond fund; would transfer my balance into the low but steady yield "G" fund (for fed employees) for the short term, until congerss gets it's shiote together..




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    Jul 14, 2011 2:20 PM GMT
    This is the worst place to go to for advice as those of us who are licensed to do investments can't give you advice here. Seek a qualified professional to work with.
  • rnch

    Posts: 11524

    Jul 14, 2011 2:27 PM GMT
    Chainers saidThis is the worst place to go to for advice as those of us who are licensed to do investments can't give you advice here. Seek a qualified professional to work with.


    "can't"...."won't"...or "will not".... because the "licensed experts" are as dumbfounded and uncertain as the rest of us are today?



    anyone with a couple of college semesters of economic courses is as talented as anyone else to give financial advice for the uncertain financial future the USA is facing.
  • TheIStrat

    Posts: 777

    Jul 14, 2011 2:35 PM GMT
    Americans' 401ks and IRA's are fucked if we default on our debt
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    Jul 14, 2011 2:46 PM GMT
    TheIStrat saidAmericans' 401ks and IRA's are fucked if we default on our debt


    Unfortunately, this could well be the case irrespective of a potential default - and that's part of the bigger problem of the spending.
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    Jul 14, 2011 3:04 PM GMT
    rnch said
    1969er said
    rnch said
    1969er saidOK, so if it's easy to transfer the bulk to bond funds at least temporarily, is that a good option?

    thinking of doing exactly that; moving the balance out of the common stock fund...."just in case".

    Right--could always switch back once we think it's hit bottom. I'll still be contributing (buying), so I'd be buying low at least at that point again.

    yup icon_exclaim.gif
    However, the flip side here is that if they come to some agreement to raise the ceiling, it will most likely be received in a very positive manner and the market will see a spike that if you moved your money into the 'G Fund' would result in a loss of recovered funds rather than capital preservation.
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    Jul 14, 2011 6:42 PM GMT
    rnch said
    Chainers saidThis is the worst place to go to for advice as those of us who are licensed to do investments can't give you advice here. Seek a qualified professional to work with.


    "can't"...."won't"...or "will not".... because the "licensed experts" are as dumbfounded and uncertain as the rest of us are today?



    anyone with a couple of college semesters of economic courses is as talented as anyone else to give financial advice for the uncertain financial future the USA is facing.


    Can't as in the government does not allow us to make really stupid blanket statements to individuals because they will act on it like retards without taking into account that there is no "rule" or "investment" that is guaranteed to make you money.

    As in economics (such as the study of buying trends etc) doesnt relate to the market as much as finance (such as studying financial information of companies, regions and so forth) and the idea that anyone with a couple of classes in economics can give you financial advise is retarded because then everyone would be hedge fund managers and not bitch and moan about how much money they make (oh wait, thats not because they have "talent" its because they are lucky. Im sure you could do their job too).

    Tool, you deserve to lose all your cash, and have just made the dunce section of RealJock.
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    Jul 14, 2011 7:20 PM GMT
    southbeach1500 said
    TheIStrat saidAmericans' 401ks and IRA's are fucked if we default on our debt


    The only way there will be a default is if President Obama wants one.

    President Obama is constitutionally bound to pay the interest on the national debt. To not do so would be a breach of his constitutional duty (and most likely an impeachable offense).



    I'm not being argumentative here, but is this true? Can you site it?
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    Jul 14, 2011 7:22 PM GMT
    JeremiahSmith said
    southbeach1500 said
    TheIStrat saidAmericans' 401ks and IRA's are fucked if we default on our debt


    The only way there will be a default is if President Obama wants one.

    President Obama is constitutionally bound to pay the interest on the national debt. To not do so would be a breach of his constitutional duty (and most likely an impeachable offense).



    I'm not being argumentative here, but is this true? Can you site it?


    Well, yes it is true, because there is always a choice on whether or not one pays back debt.

    To default, he has to simply not pay it back lol.
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    Jul 14, 2011 7:27 PM GMT
    Chainers said
    JeremiahSmith said
    southbeach1500 said
    TheIStrat saidAmericans' 401ks and IRA's are fucked if we default on our debt


    The only way there will be a default is if President Obama wants one.

    President Obama is constitutionally bound to pay the interest on the national debt. To not do so would be a breach of his constitutional duty (and most likely an impeachable offense).



    I'm not being argumentative here, but is this true? Can you site it?


    Well, yes it is true, because there is always a choice on whether or not one pays back debt.

    To default, he has to simply not pay it back lol.


    THANKS!icon_wink.gif I get that part of it. I was wondering how the Constitution fits it....
  • coolarmydude

    Posts: 9190

    Jul 14, 2011 7:43 PM GMT
    rnch said
    1969er saidOK, so if it's easy to transfer the bulk to bond funds at least temporarily, is that a good option?




    thinking of doing exactly that; moving the balance out of the common stock fund...."just in case".


    OMG. Me too! G fund baby! I just had the TSP office mail me my account number (I'm deployed) so that I can log in and shift the funds if the debt ceiling isn't raised. Gotta play it safe if that happens.

    But I don't think it will. Everyone knows that defaulting on debt makes it even more expensive to repay. Debt is okay as long as it is paid on schedule. That's what keeps the credit rating going. The moment you default, the moment you lose your good credit and the more expensive it becomes to finance that debt.
  • coolarmydude

    Posts: 9190

    Jul 14, 2011 7:49 PM GMT
    southbeach1500 said
    TheIStrat saidAmericans' 401ks and IRA's are fucked if we default on our debt


    The only way there will be a default is if President Obama wants one.


    Debt ceiling raised in the last decade:

    Jan 28, 2010 (12.4T to 14.3T, 15.3% increase)
    Dec 24, 2009 (12.1 to 12.4T, 2.5% increase)
    Feb 10, 2009 (11.3 to 12.1T, 7.1% increase)
    Oct 01, 2008 (10.6 to 11.3T, 6.6% increase)
    Apr 10, 2008 (9.8 to 10.6T, 8.2% increase)
    Sep 27, 2007 (9.0 to 9.8T, 8.8% increase)
    Mar 16, 2006 (8.2 to 9.0T, 9.8% increase)
    Nov 17, 2004 (7.4 to 8.2T, 10.8% increase)
    May 23, 2003 (6.4 to 7.4T, 15.6% increase)
    Jun 11, 2002 (6.0 to 6.4T, 6.7% increase)
  • Webster666

    Posts: 9217

    Jul 14, 2011 7:52 PM GMT
    rnch saidalthough my federal civil service 401-K (thrift savings plan in federal speak) is diversified into several different investment plans, the majority is now in the C fund, AKA the common stock fund.

    i'm wondering/worried/concerned about what will happen to the stock market if the dems and gop's can't get their shiote together.

    your opinions/insight, please.




    icon_idea.gif





    I have my entire TSP account in the G fund, until this mess blows over. I also, just last week, moved all of my private stock holdings out of the stock market.

    Why ? Because those Congressional Republicans are just crazy enough to let the United States default on our debts, which will cause Moody's to lower our currently "AAA" bond rating, which will cause the stock market to plummet.

    My advice to you is to, ABSOLUTELY, get out of the C fund, until this blows over, which should be no more than a month from now.
  • coolarmydude

    Posts: 9190

    Jul 14, 2011 7:52 PM GMT
    southbeach1500 said
    Then, check out the Constitution:

    Section 8 - Powers of Congress

    The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts



    That's not a Constitutional obligation. That is a stipulated power reserved to the Legislative Branch.
  • Posted by a hidden member.
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    Jul 14, 2011 7:54 PM GMT
    My 401(k) is loosing it's value everyday. Can't move it around because of the way it's structured. I also won't worry about something I have no control over either. I'm more concerned about those on Soc Sec and unemployment and Disability, they are one who will hurt by this madness!
  • Webster666

    Posts: 9217

    Jul 14, 2011 7:55 PM GMT
    rnch said
    Chainers saidThis is the worst place to go to for advice as those of us who are licensed to do investments can't give you advice here. Seek a qualified professional to work with.


    "can't"...."won't"...or "will not".... because the "licensed experts" are as dumbfounded and uncertain as the rest of us are today?



    anyone with a couple of college semesters of economic courses is as talented as anyone else to give financial advice for the uncertain financial future the USA is facing.





    Exactly. I remember when all the so called experts were saying that the stock market would hit 16,000. That was just before the 2008 crash.

  • Webster666

    Posts: 9217

    Jul 14, 2011 7:57 PM GMT
    TheIStrat saidAmericans' 401ks and IRA's are fucked if we default on our debt





    Not necessarily.
    It depends on where your money is invested.
    And, we're talking about a federal government employee retirement fund, which offers numerous options where investors can completely avoid the stock market or the bond market, if they so choose.
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    Jul 14, 2011 7:58 PM GMT
    Webster666 said
    rnch said
    Chainers saidThis is the worst place to go to for advice as those of us who are licensed to do investments can't give you advice here. Seek a qualified professional to work with.


    "can't"...."won't"...or "will not".... because the "licensed experts" are as dumbfounded and uncertain as the rest of us are today?



    anyone with a couple of college semesters of economic courses is as talented as anyone else to give financial advice for the uncertain financial future the USA is facing.





    Exactly. I remember when all the so called experts were saying that the stock market would hit 16,000. That was just before the 2008 crash.



    You guys are all idiots. I hope you lose all your moneys. Tools