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With the debt ceiling looming, are your assets diversified?

I’m hearing from a lot of you who are concerned about the debt ceiling battle in Washington and what it might mean for you if the two sides can’t come together on a deal before the U.S. defaults on its bills. 

In my view, the whole rodeo is being blown out of proportion by the media as it floods us with what-if scenarios. There is a history of presidents having to work with a hostile opposition party in Congress when up against the debt ceiling. The only solution is for both parties to agree to raise the debt ceiling and then focus on a truly balanced budget.

Unfortunately, they’re playing a game of chicken with millions of jobs and the global financial market. They’re trying to tout their willingness to battle “the other side,” but the whole thing reeks of posturing rather than patriotism. 

There likely won’t be a permanent solution to the debt ceiling. I anticipate that they’ll just raise it and kick the can down the road to the next group of politicians. I don’t see this being the end of American capitalism. 

That said, what if we do default temporarily? The markets will likely gyrate. But the last time we were this close was in 2011 when markets reacted badly but then rebounded after a few months

The threat of a swoon is still great enough that many of the questions I’m getting are about diversification. What is it, and do I have it?

Let me start by dispelling a common myth: Diversification is not about having assets spread out among several different financial institutions. I’ve had folks show me their 401(k) at one company, their Roth IRA at another, their emergency savings at a third, and their kid’s college fund at a fourth. Sometimes they even have investments managed by two or three financial advisory firms.

To be clear, I don’t call this diversification. I call this a headache. For you and for your loved ones should something happen to you.

Diversification is not the number of accounts open; diversification is what’s happening within each of those accounts with assets being allocated in a variety of ways. 

If you’re reading this, take a look at where your various financial accounts are held. It’s normal for someone to have a bank they bank with, a retirement account through their job, and a financial planning team managing their portfolio. But if you get to the point where your list of usernames and passwords starts to look like the roster of a basketball team, it might be a good time to think about what true diversification should be for you. 

If you’re concerned about the debt ceiling fight and want somebody to give you a second opinion on whether you’re actually diversified, give us a call. A lot of that conversation boils down to where you are in life and the level of risk you’re comfortable enduring. It can be a tricky line to walk, but it’s what we do at Family Financial Partners. 

Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.

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