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On a Thursday morning, it's MORNING EDITION, from NPR News. I'm Steve Inskeep.

MARY LOUISE KELLY, host:

And I'm Mary Louise Kelly, in for Renee Montagne.

Here's a question no one knows the answer to: What happens if there's no agreement on raising the debt ceiling?

INSKEEP: In this part of the program, we'll consider how a default - or whatever might happen after August 2nd - could affect states, and also how it could affect individual Americans.

KELLY: Remember, just three years ago, at the height of the financial crisis, many people watched their retirement savings and their stock portfolios evaporate.

INSKEEP: So NPR's Chris Arnold has been asking experts if that could happen again.

CHRIS ARNOLD: For anyone following the news this week, it's hard to miss the many dire predictions about what will happen if the U.S. actually defaults on its debt. Economists say it would be disaster. CEO's are upset and are calling upon Washington to reach a deal.

President Obama offered this warning.

President BARACK OBAMA: We would risk sparking a deep economic crisis, this one caused almost entirely by Washington.

ARNOLD: So what does all this mean for average Americans with one or both eyes on their retirement savings? One NPR listener who wrote into our website said that he's selling all of his mutual funds. But experts say that's probably not the best approach right now.

To talk about all this, we called up Liz Ann Sonders. She's the chief investment strategist for the brokerage firm Charles Schwab.

Ms. LIZ ANN SONDERS (Chief Investment Strategist, Charles Schwab Corporation): Well, look. Nerves are rattled. Our general advice, no matter what the crises, is not to panic, that that doesn't tend to be a viable investment strategy even in the short-term, let alone the long-term.

ARNOLD: Many top investors say that if you already have a well thought-out, diversified retirement portfolio, the best thing for people to do in times of uncertainty is to stay the course. And Sonders thinks an economic calamity here is unlikely.

Ms. SONDERS: But I think there's parallel issues, here. There's the potential for a default, which I think remains still quite low. There's a higher potential that the U.S. gets downgraded by one or both, or maybe all three of the key ratings agencies. And that does have both economic and market implications.

ARNOLD: One fear is that a downgrade might spark a rise in interest rates. But many analysts think that that'd be small rise and it would be short lived. And most are not predicting massive disruptions. That's mainly because investors and financial firms have already had plenty of time to get ready for this - and if they want to, to make adjustments.

For example, another concern voiced early on is that a ratings downgrade on U.S. Treasuries - down below the longstanding triple-A rating - could spark what's called forced selling.

Ms. SONDERS: Forced rush of selling by those funds that have to hold the triple-A securities. It's in their in their covenant. It's in their investment policy.

ARNOLD: But financial institutions have had time now to change such requirements. And Sonders says it turns out that only a tiny fraction of U.S. treasuries are held by funds that have such strict rules, anyway.

Mr. DAVID GLOCKE (Fund Manager, Vanguard Group Inc.): No. No. Our money market funds don't have any type of mandates that would require forced selling if the Treasury was down-graded.

ARNOLD: David Glocke is a top portfolio manager at Vanguard. He oversees the firm's Prime Money Market Fund. That means that he's managing more than $100 billion.

Mr. GLOCKE: In fact, it's hard to imagine that there would be any forced selling.

ARNOLD: Glocke says he's been doing some re-juggling of the Treasuries in his portfolio, but he's definitely not backing away from them.

Mr. GLOCKE: So we've been adding Treasury securities and, in fact, I bought more yesterday. That's a testament to what I believe is really the health and strength of the U.S. Treasury. Where's a better place to invest your money?

ARNOLD: Glocke predicts investors around the world will stay in U.S. Treasuries because they'll still be seen as the safest, rock-solid investment around. He says in the long-term, there is a risk that that might change if the U.S. doesn't get its national debt under control. But not now.

Liz Ann Sonders agrees. She says, especially with all the financial trouble in Europe, Treasuries are the best-looking lifeboat in the water. True, they might get a ratings down-grade.

But if you're out there swimming and you want to get in a life-boat, it's still the...

Ms. SONDERS: It's still the one you're going to go in.

ARNOLD: So, again, if you have a well-balanced, diversified retirement portfolio, most experts would say stick with it and don't panic. And if you don't have a well-thought-out plan, Sonders says this current drama in Washington could serve as a reminder to do some research and get one.

There is more advice on how to structure your retirement account at npr.org.

Chris Arnold, NPR News.

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