Although you might feel uneasy or rattled, lenders typically don’t make a distinction between 800 and 850. You are still in the top tier regardless of the rating.
This leads me to Fitch’s recent decision to downgrade the United States’ credit rating from AAA to AA+, citing the government’s over $31 trillion in debt and a “deterioration in standards of governance.”
Additionally, the downgrading “reflects anticipated fiscal deterioration over the next three years,” the business stated.
For investors, what does this mean? Do you need to worry?
As investors processed the possibility that government debt is “now considered lower quality,” the stock market experienced a sell-off, according to Laith Khalaf, head of analysis for investments at AJ Bell, in a market report. Increased government bond yields were another consequence of Fitch’s judgment, “which in turn has a negative impact on equities. “Stocks fell in the summer of 2011 after Standard & Poor’s downgraded the government from AAA to AA+ status, just after the US had narrowly avoided default. At the time, the credit-rating agency declared that the party deadlock would hurt future negotiations to reduce the nation’s spiraling debt.
Even the possibility of a downgrade, as Fitch said during the divisive debt ceiling discussion in May, might raise concerns. “Brinkmanship over the limit on debt to further political agendas, and failure to reach consensus on the country’s financial difficulties are recent signs of the deterioration in governance,” stated Fitch.
But the government’s standing is still excellent, much like a minor decline in your credit score.
Large holders of U.S. Treasury securities, including professional investors, institutions, and governments, are extremely unlikely to adjust their holdings as a result of this week’s downgrading by Fitch, according to Saglimbene.
Retail investors ought to go the same path, he advised. Due to Fitch’s downgrading, “there is no urgent threat to U.S. borrowing costs, liquidity, or the currency’s reserve status.”
Given the robustness of the American economy, Treasury Secretary Janet L. Yellen expressed her confusion over Fitch’s choice.
Since January 2021, more than 13 million new employment have been generated, according to Yellen. According to her, the unemployment rate is close to a historic low of 3.6 percent, and annual inflation as a whole has decreased each month for the past 12 months.
Treasury securities continue to be the most secure and liquid asset in the world, and the American economy remains fundamentally sound, according to Yellen.
Recent Gallup polling results revealed that many Americans have doubts about enjoying a comfortable retirement. Only 43% of non-retired persons believe they will have sufficient funds to live comfortably in retirement. That result was the most negative since 2012.
It all comes down to worry; 71 percent of non-retired adults are at least somewhat concerned about being able to support their retirement. According to Gallup, the number includes 42% of people who describe themselves as extremely concerned. However, 77 percent of retirees claim to be doing well.
One of the biggest providers of workplace retirement programs, Fidelity Investments, revealed that 401(k) and IRA balances increased in the first quarter of 2023. Due to “improving economic conditions and an increase in donations from employers,” according to Fidelity, it was the second consecutive quarter of gains.
In comparison to the previous three months of 2022, the average 401(k) balance increased by 4% to $108,200, while the average IRA amount increased by 5% to $109,000. The average account balance for 403(b)s increased by 6% to $97,900.