As of 12:00 AM this morning, congress failed to come to an agreement over government spending, primarily centered around the Affordable Care Act, also known as ObamaCare. This is the culmination of weeks of stubborn balking by both sides of Congress, and has plunged the United States government into a partial shutdown, where all non-essential personnel will be sent home without pay.
As an event of this nature unfolds, the ordinary investor can’t help but feel a little uneasy and worry about how this will affect them. First, it is important to keep in mind that a government shutdown is very unlikely to last for an extended period of time. This is in all likelihood a short-term issue, whereas investors should always maintain focus on the long-run. Our investment decisions are based on cash flows over the long-term (five to ten years), so while a government shutdown could generate widespread headlines over the short-term, it’s probably going to be nothing more than a blip on a graph when it is all said and done in terms of equity market valuations. Sure, there may be some heightened volatility in the near-term, but overall, there is absolutely no reason to run out and sell all of your stocks. It is important in times such as this to stay the course.
This same viewpoint should also apply to the looming government debt-ceiling debate. Congress failing to raise the federal borrowing limit could create headwinds for the U.S. economy and cause the U.S. government to restructure its debt, or even technically default for the first time. It is important to remember though that this is an extreme outside risk at the moment. When push comes to shove, the Federal Government has to pay its debts and has the ability to do so, and Congress knows this. Neither party, Democrat or Republican, wants to have the U.S. Government’s first ever default on their conscience.
To reiterate, the key is for investors to always keep an eye on the long-term, 5-10 years out, and not get caught up in the short-term static surrounding Washington politics, the Fed, or whatever the day’s hot-button issue is. There will always be a metaphorical impasse, a cliff our economy is about to fall off, but keep these short-term occurrences in perspective and remember that the cash flows a company generates are the true driver of intrinsic value over the long haul. These cash flows over multiple decades are not going to be affected by a few weeks of the government staying closed.