Worried about default? How to fortify your finances as the markets reel

Michelle Singletary
Columnist October 10, 2013

All the talk about the federal debt ceiling might remind you of Charlie Brown’s teacher.

Remember her from the animated television specials based on the “Peanuts” comic strip, created by Charles M. Schulz? All you hear when the teacher speaks is, “Waa, waa, waa, waa.”

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

That might be what you hear when politicians talk about the fight to raise the debt limit, except that you aren’t laughing because you’re too worried about what it all means for your own financial situation.

A deal might be struck soon, but I wanted to help ease some of your fears. I asked a number of experts to address some of the questions you may have.

Q: Should I be worried about my money?

A: Stephen Brobeck, executive director of Consumer Federation of America: “At this point, I don’t think it’s productive for consumers to worry greatly about their personal funds. Big investors around the world are concerned, but I still think House Republican leaders will act to avoid default. And consumers should remember that the key financial services regulatory agencies, including the Federal Deposit Insurance Corp. and its insurance funds that protect consumer bank deposits, do not depend on federal funding. However, even if default is avoided, consumers should be very concerned about the impact of continued congressional use of default, and government shutdowns, on their incomes and investments. The resulting erosion of investor and consumer confidence could well halt our slow recovery from the Great Recession.”

Q: Really, the money in my bank account is protected? Even in the event of a government default?

A: The Federal Deposit Insurance Corp.: “Yes. Deposit insurance will continue to protect the insured deposits of bank customers. In close to 80 years of operation, no one has ever lost a penny of insured deposits.

“The FDIC commitment to pay 100 percent of all insured deposits remains in place. We always encourage bank customers to understand deposit insurance coverage. To learn more, visit www.fdic.gov.” When you go to the site, search: “Are my deposits insured?”

Q: Should I be doing something different with my investments?

A: Chris Horymski, associate editor for Consumer Reports: “We’ve been advising the same, long-term passive investing approach as always, precisely because of events like these. Staying diversified among asset classes, which means owning both stocks and bonds, and not trying to guess the outcome of whatever happens in Washington, is usually the best course of action.”

Q: Is there anything I should do about my retirement plan? I’m scared.

A: Don Blandin, president and chief executive of the Investor Protection Trust: “The evidence from recent market downturns is clear. Investors who panicked on bad news and took their money out ended up returning too late to realize profits when the markets bounced back. The real danger of ‘overreacting’ is not at the moment of crisis — it’s days, weeks or months later when the market comes back and you are still sitting on the sidelines with your cash.

“The best solution for long-term investors is to stop obsessing about day-in, day-out ups and downs. You are much better off buckling in for the long haul.

“Now, the one positive thing about a crisis is that it gets you focused on your investments. And that can be a very good thing. We encourage people to take stock of their portfolio every year. Figure out what is working and where it may need to change or be supplemented in some way.”

Q: What should I do if I’m near retirement?

A: Valerie Coleman Morris, author of “It’s Your Money So Take It Personally” and a financial literacy specialist: “Be vigilant. Don’t loan money. Put your financial oxygen masks on and breathe. Time is not on your side for recovery, so have a personal ceiling on your spending and lending.”

Q: What should I tell my creditors if any fallout from a default, even if it’s avoided, results in my being laid off or getting reduced hours on my job?

A: Nina Heck, director of counseling and credit management for Consumer Credit Counseling Services of Maryland and Delaware: “Consumers should make their creditors aware anytime there is an interruption in their ability to pay as promised. Explain the situation, have a financial plan in place, and provide as much information as you can regarding when you anticipate resuming payments. It’s very important to not make any promises you can’t keep.”

Q: What should I do if I’m living off my retirement savings now?

A: Gerri Walsh, Financial Industry Regulatory Authority’s senior vice president for investor education: “Staying diversified is also important in retirement.” But, Walsh says, in your quest to boost returns, don’t turn to complex or alternative investments and take risks you “either do not understand or cannot afford. If investors do not fully understand the leverage and other risk and reward features of a complex investment, they should stop right there. A good general rule is never invest in products you do not understand.”

I hope the answers calmed you some. But in the end, I’m feeling like Blandin, which is that all this “Waa, waa, waa, waa” will scare people away from saving and investing in the long run.

“The current behavior of lawmakers hurts people already scared of investing,” Blandin said. “It is hard enough to build trust in the financial markets among new and returning investors without the gyrations of uncompromising lawmakers providing daily headlines of gloom and doom.”

Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.
com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Comments
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=bg52e9xhqr, display_more=true, moderationrequired=false, includefeaturenotification=true, comments_period=14, defaultsort=reverseChronological, canvas_allcomments_id=washpost.com/km4ey0dajm, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Show Comments
Most Read Business