Vanguard’s Debt-Ceiling Stance - Adviser Investments

Vanguard’s Debt-Ceiling Stance

October 11, 2013

Fidelity and Vanguard’s Debt-Ceiling Responses

Going by the headlines, the intersection between politics and investing seems to have become more and more treacherous to navigate over the past several years. In the midst of the current government shutdown, which has had a mostly negative impact on the stock markets since it began at the start of October, we’re also drawing nearer to reaching the legal limit of debt the U.S. is allowed to incur, another issue that requires an end, at least temporarily, to the gridlock in Washington. You may have been hearing a lot about the political and economic ramifications of a deal not coming to fruition in time to avoid default over the last week-plus, but maybe not as much about what institutional investors like those at Fidelity and Vanguard are doing in response.

Fidelity revealed this week that its money market funds have sold out of all short-term Treasury bills that come due in late October and early November on the chance that the U.S. government does default on its obligations, while also increasing their allocation to cash. The firm views that period of time and the issues that are scheduled to be paid off during it as most at risk if there is a failure to return capital to bond-holders when they reach maturity. That said, Fidelity has stated that it believes a deal will be reached to raise the debt ceiling and avoid default, but in its money markets—the most conservative, safest investments it manages—the firm feels an excess of caution is the most appropriate response to current events.

We should note that Fidelity is not the only institutional investor that has been selling short-term Treasurys (JPMorgan Chase was another prominent seller)—prices have fallen on these notes and there has been a corresponding rise in yields from 0.02% to as high as 0.31% on 1-month Treasurys over the first 10 days in October. The move represents a rapid and remarkable jump over such a short period, especially considering that yields on these notes haven’t been this high in nearly five years.

Vanguard has not publicly discussed any portfolio moves in response to the shutdown or potential debt-ceiling scenarios, but several of the firm’s strategists have shared their opinions and advice. Like Fidelity, Vanguard’s stance is that an agreement will be reached before the U.S. hits the debt ceiling, although it might be a short-term measure. But no matter the outcome, both firms have the same advice: Stay the course and keep your eyes on your long-term goals. We concur, although we know it can be difficult to follow through with a long-term plan when it seems like the sky is falling today.

At times like these, we think a trusted financial adviser can keep you on track and take some of the emotion out of the equation when it comes to your portfolio. Adviser Investments has nearly 20 years of experience helping clients traverse everything the markets have had to offer. In a world filled with uncertainty, we work tirelessly to provide investing peace of mind year in and year out. If you have concerns about the current investing environment and would like to hear about what our team can do for you, please don’t hesitate to give us a call at (800) 492-6868.

 

About Adviser Investments
Adviser Investments operates as an independent, professional wealth management firm with expertise in Fidelity and Vanguard funds, actively managed mutual funds, ETFs, fixed-income investing, tactical strategies and financial planning. Our investment professionals focus on helping individual investors, trusts, foundations and institutions meet their investment goals. Our minimum account size is $350,000. For the fifth consecutive year, Adviser Investments was named to Barron’s list of the top 100 independent financial advisers nationwide and its list of the top advisory firms in Massachusetts in 2017. We have also been recognized on the Financial Times 300 Top Registered Investment Advisers list in 2014, 2015 and 2016.

For more information, please visit www.adviserinvestments.com or call 800-492-6868.

Disclaimer: This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations, personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

The Barron’s rankings consider factors such as assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. This award does not consider client experience and is not indicative of future performance.

Editors at the Financial Times bestowed “elite” status on 300 firms in the U.S., as determined by assets under management, asset growth, longevity, compliance record, industry certifications and online accessibility.

© 2018 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.