Don’t panic! Don’t panic!…..Downgrading America’s Credit Rating

In the last week, equity markets have been as volatile and seen falls as significant as those last experienced in 2008, eventually bringing the downfall of Lehman Brothers in September of that year, as one of the many consequences.

The announcement by Standard & Poor’s on Friday, 05th August of the downgrade of the US’s credit rating from AAA to AA+, the first time this has fallen since 1917, is very significant. American politicians and pundits are arguing against this significant change, however, S&P note that part of the reason for the downgrade is last weeks squabbling between the political camps to agree a new US debt limit (now agreed at $16.8 trillion).

The effects of this downgrade change may not be immediate, however many are likely not to see this as a positive change, with some calling for international control of the Dollar as one of the most important central currencies. This also raises the question of what this means for clients in the UK and their investment/pension funds?

The first point to make is not to panic. Selling out of a Market after a fall will only crystallise a loss. If you don’t need to take this loss, then we would normally recommend holding tight. The falls experienced this week and the AA+ announcement, along with the other global economic events, such as the Eurozone debt crisis, has been a fast moving and, if more positive news comes through, markets can move just as quickly in a positive direction, although this is not guaranteed.

Many investments/ pensions are diversified and allocated over a range of different geographical and investment areas, giving some protection against volatility. However, because of the far reaching remit of the Dollar, this may mean that all markets see some turbulence.

We would recommend that you seek independent financial advice (IFA) for your investment and pension planning if you are concerned about the recent events and need to make changes to your fund holdings. Please note that this blog should not be seen or used as individual advice.

Churchouse Financial Planning Limited can help you with your financial planning.

Keith Churchouse FPFS
Director
Churchouse Financial Planning Limited, Guildford, Surrey.
Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority (FSA)