Your Guide to Investing in This Uncertain Market
The downgrading of U.S. debt has stirred markets. Here's how investors are reacting and our advice on what to do next.
On Friday, August 5, Standard & Poor's downgraded long-term U.S. debt for the first time in history from AAA to AA+. The ratings agency cited concerns that the recent debt deal, passed on August 2, does not offer the measures necessary to stabilize the nation's economy. And, in a release following the downgrade, S&P said, "More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges."
The market has responded dismally: On August 8, the Dow Jones industrial average dove 635 points, or 5.6%.
The downgrade surprised many people and has elicited a wide range of reactions. On Facebook, we asked you, our readers, “How are you reacting to, and what questions do you have about, the latest market turmoil sparked by the S&P downgrade of the U.S.’ credit rating?”
Here are some of your responses:
• “Not reacting at all. My hubby’s a financier trained on Wall Street and we share a solid grasp of the continued relationship or lack thereof with gov’t and reality and the people. At the election I’ll respond accordingly. Reacting is a complete waste of time.” -- Patience Phillips
• “I am totally pissed off. The investors should have stood tall and kept faith in the country. I am too old to have time to rebuild my retirement fund, and my union pension is edging towards insolvency. I did all the right things, obeyed the rules, paid my taxes and still do, so now where do I go when what took 45 years to build is gone and I lose my house because I no longer can pay property taxes?” -- Susan Carroll-Gibbons
• “When they say interest rates will rise, they are not talking about CD’s and other investments are they….I hear it’s nice in Italy, and not to expensive to live in the small villages in the mountains. My question is: Is that true? Where other countries can I move to before I end up under a bridge with my 2 little dogs? (That’s 2 questions, sorry)” -- Mary Barson
• “I’ve noticed today that Conglomerates, Capital Goods and Energy have taken a hit. Which industries do you think will be hurt the most from the Downgrade?” -- Danny Kosko
• “Rebalanced my 401K two days before …. based on today’s futures …. that was a good decision!” -- Bill Busch
• “I’m thinking it’s another fine moment to jump into the market! Faithful as a pup I guess. Oh, and also I’m living in Spain right now, so compared to what I’m seeing here, we look downright peachy.” -- Maria Luz Duran Vidal
Our advice: Don’t panic.
For the most part, S&P’s downgrade has not changed our long-term investing outlook. Last week, senior editor Jeffrey R. Kosnett offered his take on the latest market turmoil: see Your Investing Guide After the Debt Deal. And here’s more:
• Go over how investors tend to react in times of panic and Learn to Control Your Fear and Profit From Crisis.
• Also, see KNIGHT KIPLINGER: An Investor’s Manifesto for more of our time-tested investing advice.
• And if you’re seriously considering fleeing the country (though we don’t endorse such extreme action), consider these 8 Great Places to Retire Abroad.