Financial advisors with clients directly affected by the government’s closure, now in it's 23rd day, are being relied on more than ever to help make ends meet through this uncertain time. Those with less direct contact to the shutdown, however, say it’s not really affecting them or their clients. Not even in the stock market, which has seen a flat S&P 500 since it started on October 1st.
At least not yet.
Matthew Gaffey, president of Corbett Road Wealth Management, says government-associated clients are becoming more concerned with each passing day because they’re getting no indication within their own circles that there is any end in sight.
Gaffey highlights three broad, yet distinct, categories that most people affected fall into, starting with government employees that are living paycheck-to-paycheck.
“While they may receive backpay for time missed, as has been the case with past shutdowns, they need some level of income to meet day-to-day expenses and any extended period of time without a job puts a significant strain on their personal situation and families. This group has been ringing the alarm bell from day one and are trying to make ends meet by picking up whatever part-time work they can find - if they can do it at all, given some of their co-workers are trying to do the same thing,” Gaffey said.
Next up are government contractors. Unless they have been deemed “essential personnel”, the majority of these workers are not getting paid, nor will they receive any backpay from the government for time missed. Many of them are cashing in on their vacation time or going into negative PTO, if their employer will allow them, in order to float themselves temporarily, according to Gaffey.
“This group is likely the next highest on the pain scale, but typically the group that seemingly receives the least amount of press coverage or empathy when previous shutdowns have occurred,” Gaffey said.
The last group in Gaffey’s hierarchy are the government employees that have a "rainy day fund" or enough savings to hold themselves over for some period of time. While this group was more comfortable with the shutdown initially, as they could also receive backpay when everything settles, Gaffey says the lack of any indication of progress is becoming a growing concern.
“This past weekend I spoke with a gentleman that told me he had approximately two additional months before it started to impact his ability to meet expenses. Not exactly the ‘Countdown to Christmas’ holiday calendar you remember having as a child,” Gaffey said.
While those directly, or even tangentially, affected by the shutdown start to feel pain in their pocketbooks, Sean Hanlon, founder and CIO of VestGen Investment Management, says the vast majority of investors have not experienced a similar squeeze and, in his view, likely won’t unless it drags on beyond a reasonable time.
“The news generally about the economy and the markets stays positive and that provides some cover here. Short-term matters such as this political gamesmanship tend to be distractions for prudent-minded long-term investors who have a well-crafted asset allocation plan populated with researched, appropriate, individual investments, so they should not factor this into their investments much at all,” Hanlon said.
Elsewhere, Scott Cimo, founder of Genesis Wealth, says that after three weeks without an agreement, clients are increasingly asking him more direct questions about what a prolonged gridlock could mean for growth, their portfolios, and financial plans. In his opinion, the biggest risk for investors isn’t necessarily the shutdown itself but letting “short term noise and volatility derail a long-term plan.”
In the meantime, he said he has seen a clear divide between generations with older clients, many of whom have lived and invested through multiple shutdowns, tending to view this as nothing more than a temporary disruption.
Said Cimo: “Concerned, yes, but seasoned enough to avoid making knee jerk reactions.”
Younger investors, at times, can be more anxious, according to Cimo.
“Although they have a long-time horizon to invest, the inexperience can add worry. My message to both groups is the same: focus on diversification, protect cash flow, and trust the plan,” Cimo said.
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