Personal finance and U.S. debt –
5 August 2011
With the recent announcement by the U.S. government that they will raise their debt ceiling, many investors ask questions about what to do.
In the late afternoon news, a day after the announcement is about more than normal market activities, both local as well as the JSE Wall Street. The news is more specific than simply the number of trades, it is about the high level of share sell-offs.
In financial planning terms this action is referred to as “herd behaviour”. The concept can briefly be described as the irrational behaviour by people who follow others’ behaviour based on emotional factors. In this case there is bad news in the market: the U.S. government cannot fulfil their financial obligations and are therefore borrowing more money. This bad news makes investors fearful of holding or buying shares in companies and they start selling off their shares causing available share prices to drop (supply & demand). Investors witness the drop in share prices and don’t want to ‘lose more money”. They offer their shares for sale, thus increasing the supply but the low demand for shares leads to further price drops (for every share to be sold, there has to be a willing buyer on the other side). Thus, a downward spiral arises.
A well-known Wall Street adage reads: “In times of crisis, money flows from weak hands to strong hands.”
What to do or not to do:
Each person’s situation is unique. So without giving specific advice to anyone:
· Do not make hasty decisions.
· Stick to your long-term strategy (plan).
We know that uncertain times will occur and therefore we like to remain connected to our customers by sharing relevant facts and monitor their investment strategy.
Ultima’s starting point is and remains “Life Long Peace of Mind.”
- Nick Dekker
Tags: falling markets, Investments, retirement, Strategies, unkown territory