This article is co-authored by Carol Schmidlin and Ann Vanderslice
The stock markets’ recent activity, not just this past week, but over the course of the last six weeks or so leading up to the debt ceiling vote in Congress, has many people concerned about what’s next.
The Standard and Poors’ downgrade of U.S. debt last Friday after the market closed is a first for our country, and there are many who are trying to predict what the ripple effects of the S&P’s actions will be. Naturally, S&P’s unprecedented step has triggered immense debate, interest and concern – coming after a couple of weeks in which investors digested unsettling information about the US debt ceiling debate, the European debt crisis, and data pointing to global slowing. The truth is, no one really knows what will happen– we haven’t been here before. There’s no history to guide us.
Looking forward, we anticipate markets to be volatile given that we are in uncharted waters. It is, of course, difficult to be both precise and accurate about movements in specific markets. Anyone who tells you differently may also have some Florida real estate they’d like to sell you.
The next question is, of course, what should you be doing with your Thrift Savings Plan. The most important thing is to have a plan. How much are you willing to lose? Right now the market has given back all of the gains of 2011 and is sitting at a small loss. Set a limit from here of what you’re willing to lose in percentage terms. Is it another 5%? 10%? More? Less? Simply looking at the S&P 500 index each day can help you manage the C Fund against your pre-determined “stop loss limit.” (and as we’ve mentioned before, the S and I Funds are closely correlated to the C Fund).
For those of you who are considering whether to re-allocate, you may also want to re-assess your tolerance for risk. Remember, it’s not how much risk you can tolerate, it’s how much risk you have to take to accomplish your goals.
As mentioned earlier, we are following the stock market developments closely. Some of the experts we follow include John Mauldin, Barry Ritholtz, and David Rosenberg. Some of them offer free newsletters and updated information and others have a fee. You can usually get their latest postings by simply Googling their names, as they’re often quoted in various media.
In closing, while the ratings change is a newsworthy event that will be with us for years to come, let us hope that the “silver lining” is greater attention to a longer term solution that will put the United States back on a path to economic prosperity.