The debt ceiling crisis, should you make changes in your 401K?

 For starters, a good explanation of the debt ceiling issue by the LA Times: http://articles.latimes.com/2011/jul/12/nation/la-naw-0713-debt-talks-qanda

The debt ceiling crisis: Should you do anything with your 401K?
My short advice is: if you are invested in a well diversified portfolio that you do not need to touch for at least 10 years  and which was built with your risk tolerance in mind then you should stay the course.
Most recommended portfolios by advisers are based on an efficient allocation of different investment options. That means they are invested in a broad range of US stocks, international stocks, corporate and government bonds.
These portfolios are designed based on what has worked over many decades of financial market activity.
For example a simple stock portfolio that consisted of holding 70% of the US stock market and 30% international stocks would have given an investor a 13.5% return since 1973. That period of time has included the Vietnam war, Watergate,oil shortages, double digit inflation and interest rates in the late 1970's, the stock market crash of 1987, 9/11, wars in Afghanistan and Iraq, the financial crisis of 2008. There has been some wild swings during that period, but an investor who stayed the course was rewarded.
Currently the US government is debating whether it will allow itself to continue to borrow money to pay its bills. It also means that tough decisions will have to be made. In the end, the US has huge obligations and the government will make decisions that will probably mean some sort of increase in taxes and lower spending over the long term.
In addition, good fundamentals are still in place: a stable government built on the rule of law, property rights, rewards for innovation. In fact, last week as European nations continue to struggle with their debt issues, investors fled to the "safety" of US treasury bonds. We may not look pretty right now, but we are still the nicest house in the neighborhood.
Could there be some turmoil in the coming weeks? Yes, but, in the long run, the government will reach a compromise and markets will stabilize.
Another way to think about is to think of what would happen under the doomsday scenario: the US government defaults on its debts and payments, doesn't reach an compromise and collapses. Well in that case, where you have moved your money will not matter. Treasury bonds, and the dollar will be worthless, banks will fail, the economy will collapse, stocks will be worthless. your investment decisions will not have mattered.
So, the only real alternative is to have faith and stay the course. Because, "defensive" moves have a high probability of being futile. They may make you feel good, but in the long run they will result in poor investment returns. We know from many academic studies: trying to time markets and sell one sector to buy another is a losing strategy. Nobody has devised a system that successfully times the market accurately  over a long period of time.
If you need your investment money within the next couple years, you should not be in stocks or any type of bond that has a maturity longer than 3 years. That money should always be in an FDIC insured savings account or in short term US treasury bonds (less than 3 years maturity).
Finally, my own review of other recommendations from industry advisers that I respect is the same as mine above: stay the course and stay diversified.



We know that