Tips On Protecting Your Money From A Federal Default

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With the countdown to the federal government’s expected August 2nd debt default getting closer every day, the U.S. economy is already seeing the impact from a weakening U.S. dollar overseas.

The result?

Oil prices are rising again on world markets as wholesale oil prices start approaching $100 a barrel again. It’s already triggering rising prices at local gas pumps, CBS4’s Al Sunshine reported.

Financial Analyst Charles Sachs blames it on congress’s inability to come up with a timely compromise to trim the U.S. debt and expand the debt ceiling so the federal government can stay in business past August 2nd.
Sachs said, “Markets don’t like uncertainty, they are reacting to congress’s inaction so far.”

It was just a few weeks ago that Wall Street was approaching the 12,800 mark and making solid gains not seen since the Wall Street’s yearly high of 12,810 back on April 29th.

Since the debt debate heated up the past few weeks, Wall Street has dropped hundreds of points.

And some financial analysts said it could soon go from bad to worse.

Sachs warned that “If there’s a default, the effect on the markets could be catastrophic.”

So what can small investors do to prepare? Some financial advisors said double check your investment blends between stocks and more stable bond funds.

Another option? Check with your advisors to see if a “Stop-Loss” order is right for you.

Sachs, a veteran Coral Gables financial advisor, explained how it works.

“A stop loss order says if you hit a certain threshold, you put in a market order,” he said. “If you have stock worth $100, and it falls to past a certain point, say $90, you have it sold through a market order”.

In simple language, you can limit your losses.

But the downside is you may be selling out at the market’s current bottom. And that means you could have your money out of play when the markets starts to go up again.

Sachs explained, “Once it goes through the threshold, you’re sold out, on the sidelines and the markets will go up again. And if you’re not careful, your money will be not be in place when the market rallies without you”

A recent CBS News poll found 66% of those surveyed believes there will be a last- minute compromise and a U.S. debt default will be averted.

But until there is an actual agreement, small investors may be running out of time to double-check with their financial advisors how to better protect our investments and retirement plans.

There are also so-called “Put Orders” offering a pre-set selling price for your stocks in case the market sees serious losses. But Sachs said they may not be right for many small investors because of their extra expense. And some personal financial advisors said they are more of an option for short-term traders, than a long-term solution for serious investors.

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