How to invest as the federal debt ceiling deadline approaches

Preston Cherry, a certified financial planner and founder and president of Concurrent Financial Planning in Green Bay, Wis. are piling up,” he said.

Cherry, who is also a member of CNBC’s Financial Advisors Council, said the fear is even greater among retirees and those approaching retirement, as well as Gen X, who may be facing retirement savings shortfalls. said it was possible.

It’s hard to predict how the stock market will react to future debt ceiling negotiations, but experts have some tips for investors.

Cherry said it’s important to avoid “emotional selling” in the face of market volatility due to events such as the Russia-Ukraine war and the dispute over the debt ceiling, especially if the market plunges. . “Those things do happen,” he said. “So we want to mitigate the emotional and financial impact.”

One of the reasons emotional selling can be so damaging is that investors may be hesitant to re-enter the market, said Lee Baker, CFP, owner of Atlanta’s Apex Financial Services. It says.

Baker, who is also a member of CNBC’s Council of Financial Advisers, said they are missing out on a recovery because “they are waiting until the market feels safe again.”

In fact, according to JP Morgan’s analysis, the 10 days of stock market highs from 2002 to 2022 saw sharp declines during the volatility caused by the 2008 economic crisis and the 2020 COVID-19 pandemic. happened after

“When you put things into perspective, [the debt ceiling] “Over 10 years ago, it was pretty bad for a period of time. But we’ve obviously bounced back pretty well.”

One silver lining of market volatility could be the opportunity to buy more assets at discounted prices, assuming you’ve already met your other financial goals. “Everybody likes a good sale,” Cherry said, noting that a 10% to 15% drop could be a solid buying opportunity.

Baker also sees drops of around 10% as he “injects new money” by storing cash in floating-rate Treasury exchange-traded funds that he can sell quickly if needed. “If there’s a crash, get something cheap,” he said.

While it may be tempting to purchase assets at a discounted price, maintaining cash is also important.

A recent CNBC/Momentive survey found that most Americans are unprepared for an economic emergency. Research shows that more than half of Americans have no emergency funds, and 40% of those who do have less than $10,000.

Experts usually suggest keeping three to six months’ worth of living expenses in cash, though some suggest larger reserves based on how long unemployment lasts.

Cash is also essential for retirees, who may need liquidity to avoid selling assets during market downturns. A study known as ‘Slice of Return Risk’ shows that taking a portfolio during market downturns can do long-term damage to the nest egg.

“You need a few months of savings to get through these times,” said Baker, who insists on keeping at least 12 months of portfolio distributions in cash.