How to Disaster-Proof Your Portfolio In Case of U.S. Debt Default

Investors need to diversify broadly and plan for long-term goals, no matter what the politicians do about the debt ceiling.

The inability of legislators and the Obama administration to agree on a plan that would allow the U.S. to avoid defaulting on its debt underscores an unsettling truth: Every portfolio needs a little disaster-proofing. And that does not mean throwing all of your money into so-called safe havens, such as gold, whenever the investment markets turn scary.

After all, the go-to safe haven for years has been U.S. Treasury securities -- the very investment at risk of default if Congress does not enact legislation raising the debt ceiling by early August. Default remains a long shot, either in the next couple of weeks or over the next few years. But if the Treasury did default, experts believe, the repercussions would be wide-ranging. Bond values would fall; stock prices would plunge; and even money market funds could be at risk because they’re loaded with short-term Treasury and government-agency IOUs. “There is no safe place to hide in this one,” says Hugh Johnson, chief investment officer of Hugh Johnson Advisors, an Albany, N.Y., investment firm with $2 billion under management.

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Kathy Kristof
Contributing Editor, Kiplinger's Personal Finance
Kristof, editor of, is an award-winning financial journalist, who writes regularly for Kiplinger's Personal Finance and CBS MoneyWatch. She's the author of Investing 101, Taming the Tuition Tiger and Kathy Kristof's Complete Book of Dollars and Sense. But perhaps her biggest claim to fame is that she was once a Jeopardy question: Kathy Kristof replaced what famous personal finance columnist, who died in 1991? Answer: Sylvia Porter.