Just when you thought you could take a break from financial drama, following the resolution of the debt ceiling issue, here comes Act 2: the downgrade of the U.S. long-term credit rating. As a citizen, you may be feeling frustrated. And as an investor, you might be getting worried. But is this concern really justified?
Certainly, it was news when Standard and Poor’s (SP) lowered the U.S. long-term credit rating from AAA to AA+. This was, after all, the first time that the U.S. has lost its AAA status since its initial publication 70 years ago. Furthermore, SP put a negative outlook on the rating, which means that further downgrades are possible. But despite these developments, there’s no reason to think that the sky is falling in on the investment world. Consider the following:
This downgrade should not be as calamitous as we’ve been led to believe. Corporate profits, always a key driver of stock prices, are still strong, and with the market correction we’ve seen in the past couple of weeks, many quality stocks now appear to be more attractively priced — which means it may actually be a good time to look for investment opportunities that make sense for you, rather than head to the “sidelines.”
In any case, you never want to overreact to any one piece of news. If you were to make big changes to your investment strategy, you’d likely incur fees and expenses — and, even more importantly, your portfolio might no longer be positioned to meet your long-term goals. You’re much better off by sticking with a strategy that’s based on your individual needs, risk tolerance and time horizon. This can be challenging, especially in light of the screaming headlines. But remember, although past performance isn’t indicative of future results, the U.S. financial markets have seen plenty of traumas in the past, and have always survived — and, usually, eventually prospered. As a smart, disciplined investor, you can do the same.