"Playing the Odds: Why Investors Should Avoid Betting on a US Debt Default"

Investors who try to bet on a potential US default are facing an uncertain and high-risk situation, warns Bankrate senior economic analyst Mark Hamrick. Hamrick explains that with the political brinksmanship in Washington over the $31 trillion debt, investors are nearing uncharted territory. The lack of precedence and uncertainty in the near term make it nearly impossible to trade on a US default. Instead, investors should maintain a long-term approach and build emergency funds.

Hamrick emphasizes that the problem with trying to make investment decisions unique to this experience is that investors have to be right twice with the timing. First, they have to be correct on the timing of getting out of the market or reducing exposure to certain assets, including equities. Then, they have to be right on the timing of when to get back in. Hamrick points out that the 2008 financial crisis was another time when investors got burned trying to time trades around the turmoil. Those who got out at the time struggled with making the right bet on when to re-enter the market.

Therefore, Hamrick advises that for most people, the best decision is to take a long-term view and maintain best financial practices, which include having sufficient emergency savings. This is particularly important now, as Treasury Secretary Janet Yellen has warned that default could come as soon as June 1, and lawmakers remain deadlocked on finding a way to lift the debt ceiling soon. A default would be catastrophic for the economy and would unleash many unknown repercussions that investors wouldn't be able to make regular assumptions about.

In terms of investment options, high-yield savings accounts offer attractive yields right now, and those are a good option to capitalize on the rising interest-rate environment. Hamrick notes that before the debt ceiling talks heated up in May, investors faced a great deal of uncertainty with recession risks rising and weakness flashing across the economy, such as in manufacturing and housing.

In addition, Hamrick points out that a US default threatens to further weaken the greenback's standing. He explains that if the full faith and credit of the US is undermined, there would be a related impact on the credibility of the dollar. While no one is reasonably predicting the dollar to stop being the world's reserve currency anytime soon, investors should consider factors that impact the strength of the dollar, like the economy and interest rates, which could become more uncertain and volatile with respect to that asset.

Overall, investors should be cautious and focus on long-term planning rather than attempting to time the market. It's crucial to have a diversified investment portfolio and maintain emergency funds to be prepared for any unexpected financial situations.