In the first place, a “downgrade,” while not good news, is far different than a default, which would result in investors not receiving current payments. Also, a rating of AA+ is still considered high quality. Furthermore, two other major rating agencies, Moody’s and Fitch, both affirmed their AAA rating on the U.S.
Of course, the financial markets may still react negatively to this downgrade. Interest rates may rise and stock prices may fall. But a downturn is likely to be short-term. As a long-term investor, try to stick with a strategy that’s based on your individual needs, risk tolerance and time horizon. During difficult times, it can be tough to maintain this discipline but in the long run, it’s usually worth the effort.
Don’t Let Low Rates Sink Your Retirement Plans
If you keep some of your retirement savings in fixed-rate investments, you probably haven’t welcomed the low interest rates of the past few years. That’s why you may need to consider some of the following moves.
First, rebalance your investment portfolio to provide an appropriate mix of investments for your objectives and risk tolerance.
Next, review your withdrawal rate: the amount you plan to take out each year from your savings and investments during your retirement. As you chart your retirement strategy you’ll need to factor in a realistic withdrawal rate.
Finally, you may want to think about redefining your definition of retirement to include working part time, consulting or opening a small business. The more you can earn, the less dependent you’ll be on your investment portfolio.
Low interest rates don’t mean you must lower your retirement expectations as long as you plan ahead and explore your options.
Contact Wendell at Edward Jones www.edwardjones.com.