Stick to worrying about what you can control.
The U.S. has debt. A lot of debt. About $31 trillion dollars worth, which is $94,000 per U.S. taxpayer. Some members of Congress have threatened to prevent the government from lifting the debt ceiling, leaving the nation to default on its dollars.
Right now, the U.S. federal budget deficit sits at 1.4 trillion. American voters have concerns, and rightly so. A big question mark is what happens to personal savings and investments if the country defaults on debt.
Suze Orman, financial guru, recently addressed whether you will lose your Treasuries if the U.S. defaults on its debt on her Women and Money podcast.
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This is what Suze Orman thinks of a U.S. default
Suze Orman said, "The short answer is there is no place to hide. If the U.S. government defaults, it would be cataclysmic. Which is why I have a high level of confidence… it just won't happen."
In other words, Orman thinks the consequences are too severe for U.S. congresspeople to follow through on threats to let the U.S. default on its debt. Everyone from foreign governments (which hold trillions in U.S. Treasuries) to insurers would be affected.
Suze Orman spoke to Sheila Blair, former chair of the Federal Deposit Insurance Corporation (FDIC), who shares Orman's opinion. They believe that despite the drama in Congress right now, the chance of the U.S. government defaulting on its debt is tiny.
While no one knows precisely what a default would entail, consumers can rest assured that their Treasuries and certificates of deposit are reasonably safe.
No money is 100% safe from a default
Orman acknowledges that no money is 100% safe from a U.S. default: "A large portion of the 24 trillion dollars is held by foreign countries… the consequences would be cataclysmic." The consequences of a default would ripple beyond North America.
At the very least, everyone in Congress is strongly motivated to raise the debt ceiling or otherwise avoid default. No one wants to be responsible for throwing a country into crisis.
Don't let anyone tell you that an investment is 100% safe -- no investment is. Systems change. But history suggests U.S. Treasuries are one of the safest places to invest your money.
Prevent and prepare for bad weather
Sticking to your financial plan is the best way to prepare for a default. Long-term savers should consider voting for rational candidates and diversifying their investments.
Vote for rational candidates
Voting is top of the list of things U.S. citizens can do to prevent a U.S. default. Vote for rational candidates who understand the terrible consequences a U.S. default would have. It's a little late for that this year, but it's something to remember during the upcoming election cycle.
Diversify your investments
In the meantime, stay diversified. Diversified investments steady your portfolio. Diversification creates a foundation that better weathers unexpected financial disasters, including a potentially earth-shaking U.S. default.
It's a good idea to save an emergency fund. Consider stashing six months of earnings in a high-yield savings account to prepare for the unexpected. You can lean on your emergency savings to avoid drawing on long-term savings during a market crash or if you lose your job.
Another way to diversify is to invest in property. Even if the market value of a property drops, a home can be lived in or rented out. Unused property can be listed on Airbnb or similar short-term rental websites to earn rental income.
Keep up with sound financial habits
Worries abound, but one of the best things you can do is maintain good financial habits. Do you have a long-term plan? Don't let the threat of a U.S. default dissuade you. There's no use in worrying about what you can't control. Continue saving money in the manner that works best for you.
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FAQs
Suze Orman said, "The short answer is there is no place to hide. If the U.S. government defaults, it would be cataclysmic. Which is why I have a high level of confidence… it just won't happen."
What does Suze Orman say about treasury bonds? ›
Orman said that she has been investing in them, recommending to her listeners to do the same and allocate a portion of their portfolio to Treasuries, especially shorter-term ones. “I still think it is wise to be investing in the three and six-month Treasury bill,” she added.
Are US Treasuries considered risk-free? ›
Treasury bonds are widely considered a risk-free investment because the U.S. government has never defaulted on its debt. However, investors should understand that even U.S. government bonds have interest rate risk.
Can you lose money with US Treasuries? ›
Treasury bonds, notes, or bills sold before their maturity date could mean a loss, depending on bond prices at the time of the sale. Simply put, the face value is only guaranteed if the Treasury is held until maturity.
Are US Treasuries protected? ›
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time.
What is safer Treasury bills or bonds? ›
For the individual investor, U.S. government debt represents a safe investment with a modest return. These bonds are considered to be among the safest investments in the world, and therefore they carry quite modest yields for investors, with short-term T-bills earning only the risk-free rate of return.
Is my Treasury bond safe? ›
Key Takeaways
Savings bonds are simple, safe, and affordable loans to the federal government that can be purchased by individual investors. These loans help finance the government and offer benefits to the purchaser.
Are US Treasuries 100% safe? ›
A Treasury bill, or T-bill, is a short-term debt obligation backed by the U.S. Treasury Department. It's one of the safest places you can save your cash, as it's backed by the full faith and credit of the government.
Do US treasuries have default risk? ›
The United States government has never defaulted on a debt or missed a payment on a debt. You would have to envision the utter collapse of the government to find a scenario that would involve losing any of the principal invested in a T-bond.
Are US Treasuries a safe haven? ›
Treasury bills, notes and bonds are considered a safe haven in times of duress. That's because of the claims paying ability of the U.S. government.
These are U.S. government bonds that offer a unique combination of safety and steady income. But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered.
Are Treasuries safer than CDs? ›
CDs and Treasuries Offer a High Degree of Safety
Both CDs and Treasuries are considered extremely safe investments. Treasuries are backed directly by the federal government, while CDs are covered by FDIC insurance – which is also backed by the federal government.
Are Treasuries safe during a recession? ›
Federal bonds or US Treasury bonds are issued by the Federal Reserve System (made up of the central bank and monetary authority of the United States.) Investors favor Treasury bonds during a recession because they're considered to be a safe investment.
Who owns most of the US Treasuries? ›
Nearly half of all US foreign-owned debt comes from five countries. All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Are US Treasuries really risk free? ›
US Treasury bonds are fixed-income securities. They're considered low-risk investments and are generally risk-free when held to maturity. That's because Treasury bonds are issued with the full faith and credit of the federal government.
Are Treasuries guaranteed by the US government? ›
All these securities are backed by the full faith and credit of the United States government.
What is the downside to buying Treasury bonds? ›
These are U.S. government bonds that offer a unique combination of safety and steady income. But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered.
Should retirees buy Treasury bonds? ›
The good news is that Treasury bonds (T-bonds) are guaranteed by the US government. They can be good investments for those who are in or close to retirement as well as younger investors who seek a stable return.
What is the disadvantage of investing in Treasury bills? ›
However, should interest rates rise, the existing T-bills fall out of favor since their return is less than the market. For this reason, T-bills have interest rate risk, which means there is a danger that bondholders might lose out should there be higher rates in the future.
Should I buy Treasuries in a retirement account? ›
If investing in a tax-sheltered account, like an individual retirement account (IRA) or a 401(k), the tax benefits that Treasuries provide disappear, because earnings in these types of accounts are not subject to income taxes.
