Hear that clock ticking?
A possible government shutdown is getting closer and closer, and with the House offering a plan to provide stopgap funding but defund Obamacare—a plan the White House is certain to oppose—the prospects for compromise are dimming.
(Read more: First thoughts: Boehner’s in a lose-lose situation)
At the moment, markets are still riding a wave of elation created by Fed Chairman Ben Bernanke’s decision to maintain quantitative easing for now. But the jitters could start at any time.
(Read more: Next up for the market? Government shutdown!)
Some investors are already concerned: Stuart Ritter, a senior financial planner at T. Rowe Price, says calls are starting to come in from clients wondering about the impact of a shutdown.
Regardless of whether markets start feeling the effects of this latest Washington showdown, though, Ritter and others say this is no time for investors to be planning short term tactical investment moves.
“There is always something to potentially react to. But what helps in the long term is putting together an asset allocation plan and sticking to that,” he said. “It’s not emotionally satisfying in the short term, but it is in most cases more financially satisfying in the long term.”
Far more useful than short term investment moves are steps to put your financial house in order, Ritter says. It’s always a good idea to have an emergency fund to cover three to six months of household expenses, and such a fund is especially important in times of potential volatility.
“If you don’t have it as big as it needs to be, now is the time to start making it bigger,” Ritter said. That can mean putting money into a money market fund, or cutting back on expenses, or both.
(Read more: Five ways to grow an emergency fund)
Ritter himself is only too aware of the potential for disruption of all kinds from a government shutdown: His wife and several relatives are federal employees.
“When these events occur they have an emotional effect.There are a lot of things you need to deal with that are associated with these kinds of things,” he said, like finding alternate health care providers if a government option is shut down. “Being in a position where you don’t have to worry about how to pay for it puts you in a better position to deal with the immediate issue.”
Scott Halliwell, a certified financial planner with USAA, is also wary of tactical market moves ahead of a possible government shutdown.
“Generally speaking, our guide to folks would be, you don’t want to use an event like this as a driver of wholesale change in your portfolio,” he said. A much better idea, he added, is to “spend less money than you earn and have a good emergency plan in place.”