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So the S&P has downgraded United States debt from it's AAA status. There have been other threads discussing why/when a downgrade will happen, as well as possibility of default. Instead, I want to know - where do we go from here?

How should the astute investor react? I think it's almost guaranteed that bond yields will increase. This should cause investors to go to bonds and leave the equity market. How should we, as investors, take advantage of this scenario to maximize returns?

I'm not interested in specific equities or predictions about how much the DJIA will fall - I want a plan of attack. What is the investor's ideal response to the downgrade?

Chris W. Rea
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BlackJack
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4 Answers4

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The time to take advantage of this downgrade was BEFORE it happened, not after. Typically responding to an event after the market has already had time to correct for it is a good way to lose money.

gef05
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Chase Seibert
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9

Personally I'm not doing anything; my monthly purchases are occurring as per normal.

This kick in the pants was politically justified - we need to stop impersonating third world nations - but from a credit/financial perspective I doubt it will amount to much. As many commentators said over the past few months, the damage was locked into the market well ahead of the inevitable 11th hour debt-ceiling "decision".

gef05
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3

To mimic that any real action would be too late, I would further offer up that only a single entity downgraded the US, and it is catching a lot of heat for doing so.

I suspect that the S&P people may have hurt their own reputation more than they hurt the US credit rating.

This is my initial reaction is based on this article:

http://robertreich.org/post/8542550924

Maybe I am only person who agrees and my vote is a tiny one, but the point about this being a political issue not a credit worthiness issue is a strong one to me.

MrChrister
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2

You need to be calm and wait. If rates do in fact rise, you'll have options.

Hopefully, you have a portion of your portfolio in liquid/cash investments that can be used to take advantage of opportunities as they present themselves.

duffbeer703
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