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Will a government shutdown hurt your investments?

by Janessa Lee

Lawmakers on Capitol Hill are currently locked in a virtual stalemate over a budget resolution that would fund the U.S. government for the remainder of the fiscal year. With the Oct. 1 deadline looming, there is a real possibility that the government will shut down if an agreement cannot be reached in time. This would have significant consequences, including the halting of all “nonessential” government business and a loss of pay for approximately 4 million federal employees.

However, despite these potential disruptions, financial experts are not too concerned about the impact of a government shutdown on the markets. The main reason for their optimism is that shutdowns have happened before and the markets have emerged largely unscathed. Since 1975, there have been 21 government shutdowns, lasting an average of 8 days. The most recent shutdown, which occurred from late 2018 to early 2019, lasted 34 days. Throughout these instances, the S&P 500 has actually had a positive return, averaging at 0.1%. This history suggests that government shutdowns have not historically had a significant impact on markets.

One reason for this lack of concern is that any economic disruptions caused by a shutdown are usually temporary. While government employees may experience a loss of income during the shutdown, they typically receive back pay once the shutdown ends. This means that the economic impact is more of a shifting of resources rather than a permanent disruption.

Additionally, government shutdowns tend to be short-lived, as both parties involved usually face public backlash and pressure to resolve the situation. Investors understand this and expect a relatively quick resolution to the stalemate. While prolonged shutdowns could potentially create more volatility in the markets due to political uncertainty, experts believe that economic data will have a greater impact on market moves in the coming months.

Ultimately, financial experts advise investors to stay focused on their long-term investment plans and not let short-term fluctuations in the market impact their decision-making. Shutdowns are not a new phenomenon, and they are likely to happen again in the future. Therefore, it is essential to maintain a steady and disciplined approach to investment strategies.

In conclusion, while a government shutdown carries potential risks and disruptions, financial experts believe that investors should not be overly concerned about its impact on their portfolios. History has shown that shutdowns have not had a significant impact on markets, and any disruptions caused by a shutdown are usually temporary. By staying focused on long-term investment plans and not letting short-term uncertainties sway their decisions, investors can navigate through potential challenges with confidence.

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