How Does The U.S. Credit Rating Downgrade Affect Me?
BOSTON (CBS) - Does the U.S. credit rating downgrade have you confused?
Julie Donnelly of the Boston Business Journal answered some common questions for WBZ-TV Monday to help clear things up.
Q. We always hear when you're talking long-term investments like retirement funds you really need to stick with it for the long haul. Is that really the best strategy, do you think, in situations like this?
Julie speaks with WBZ-TV:
JD. "Well, I'm certainly not an investment adviser, but yes, that's what advisers are saying, is to sit tight. It's easy advice to take when you're 30 or 40, but when you're closer to retirement, it's much more chilling. Some advisers are saying that if you do have some assets that you've been wanting to offload for a while, now might be a good time because stocks may stay in the doldrums for a while, and those under-performing assets could get even lower.
WBZ-TV's Karen Anderson spoke to concerned Bay State residents:
"But in general, those that are closer to retirement should be shifting their assets into lower-volatility things like bonds and annuities anyway, so people should continue with that strategy."
Q. There's been a lot of talk about how the downgrade can lead to higher interest rates. We had a viewer write into our Curiosity page to ask if there are any upsides to higher interest rates. He writes, 'Will savings account interest rates be increased?'
JD. "Okay, first, well let's have the bad news first. The bad news is that consumer debt that relies on short-term interest rates is going to be hit, so things like student loans, private student loans, those interest rates may go up. Credit card rates, those might go up, either because the so-called 'prime rate' goes up, or because card companies are skittish and decide to raise rates from between 1 percent and 5 percent, according to credit.com, is something that could happen.
Christine Armstrong, Senior Vice President of Morgan Stanley speaks to WBZ-TV on the downgrade:
"Things like car loans could go up slightly, but experts say that's probably a small impact. If you've got a fixed-rate mortgage, no concerns there. People with adjustable rate mortgages, they are a little bit more vulnerable.
"And the question about, what about my savings account, is that interest rate going to go up? What I've seen is actually no, and the reason is because those rates are tied to demand for borrowing from banks. And because of the continuing weakness of the economy, the fact that people aren't remodeling their kitchens or expanding their businesses and there's not that demand for lending, the banks don't have the incentive for you and I to put more deposits in to make them available for lending. So, sorry about that, and I wish I had better news."
Q. Well, how are companies doing locally? Any good news there?
JD. "Not so much, except Boston Beer. Boston Beer, the makers of Sam Adams beer, they are down just a fraction of a percentage, but I can't say that about many of the other stocks. Defibrillator maker, medical device maker Zoll, at last check, was down more than 20 percent (at mid-day). This is a stock that was really well-performing in July. It's a big dip for them, also some clean energy companies. Solar equipment company SatCon and also an electric car battery maker A123, very promising companies, both down more 10 percent. Talbots clothes also down about 10 percent. It is something of a bloodbath across the board."
