Understanding the Government Shutdown and What It Really Means for Your Investments
Where the Money Actually Goes
When headlines about a government shutdown dominate the news, the first question most people ask is simple: where is all the money going? The answer helps explain why shutdowns happen so often — and why they’re so hard to resolve.
Roughly 60% of all federal spending is mandatory, meaning it goes toward programs like Social Security, Medicare, and Medicaid. These payments are required by law and continue regardless of political debate. Another 13% covers interest on our national debt, a figure that continues to grow as borrowing increases. That leaves just 27% as discretionary spending — the portion Congress actually negotiates over each year.
Here’s where it gets interesting: about half of that discretionary spending — 47% — funds national defense. The remainder covers everything from air traffic control and food inspections to education, infrastructure, and environmental protection. In other words, the portion of the budget that politicians can realistically adjust without major consequences is much smaller than most people assume.
Why Big Cuts Are So Hard
Every few years, calls to “cut government spending” resurface, often with promises of trimming trillions from the budget. But when you look at the numbers, it’s not that simple. Cutting discretionary spending is like thinking that skipping your morning coffee will somehow make you a millionaire. Small adjustments may add up slowly, but they rarely change the big picture.
Having spent two decades in the corporate world before founding TAMMA Capital, I know that every organization — public or private — has room to be more efficient. But the federal government isn’t a typical business. We all rely on the systems it funds: safe drinking water, air traffic control, public safety, and infrastructure. The question becomes not just what to cut, but what we’re actually willing to live without.
How the Market Really Reacts
Many investors assume a government shutdown must mean trouble for the stock market. The reality is almost the opposite. Historically, markets tend to look past shutdowns as short-term noise.
If you track the S&P 500’s performance during past shutdowns, the data is clear: six months after a shutdown begins, the index has been positive in nearly every case since 1981. The markets don’t like uncertainty, but they understand that shutdowns are political events, not economic ones. They usually end, government operations resume, and long-term growth continues.
So while the headlines can be alarming, history suggests that markets rarely view shutdowns as meaningful economic threats.
Why Long-Term Investors Should Stay the Course
If you’re investing for the long term — five, ten, or fifteen years — a government shutdown is little more than a blip. Even for retirees, the long-term impact is typically minimal. That doesn’t mean you shouldn’t feel uneasy; it’s natural to worry when uncertainty dominates the news cycle. But emotionally reacting to short-term events can lead to costly mistakes.
At TAMMA Capital, I remind families that staying disciplined through temporary noise is one of the most powerful ways to build lasting wealth. Successful investing isn’t about predicting headlines — it’s about aligning your portfolio with your life’s goals and maintaining perspective when others lose it.
The Real-World Impact
Of course, shutdowns do have consequences — especially for families whose livelihoods depend on government work. During a shutdown, hundreds of thousands of federal employees are furloughed. While Congress continues to receive pay, many staffers and federal workers do not. Even though they typically receive back pay when the government reopens, the delay can strain families living paycheck to paycheck.
This ripple effect extends to local economies, particularly in areas like Washington, D.C., where government employment drives much of the spending. For those families, a shutdown isn’t a political issue; it’s a deeply personal one that affects their day-to-day lives.
Incentives and the Bigger Question
There’s also a deeper question behind every shutdown: are we incentivizing the right people to serve in government? Members of Congress earn around $175,000 a year — a good salary, but far less than what many could earn in the private sector. If, as investor Charlie Munger famously said, “incentives rule the world,” then maybe the system’s incentives don’t align with attracting the brightest problem solvers to public service.
The lack of collaboration between political parties has only made the problem worse. Families I talk to, regardless of political views, express the same frustration: our leaders seem more focused on fighting each other than solving problems. Until that changes, shutdowns will likely remain part of our political landscape.
What to Watch Next
One consequence of a shutdown that often goes overlooked is the temporary halt in economic data. Without reports from government agencies, investors lose access to key insights that guide financial decisions. During these periods, corporate earnings reports become the next best indicator of how the economy is actually performing.
As earnings season begins, we’ll learn more about how businesses are adapting to broader economic pressures — from interest rates to trade policies. The big question will be whether tariffs or supply chain disruptions have started to affect company profits or consumer prices. So far, we haven’t seen much evidence of that, but this next round of reports could tell a more complete story.
Staying Focused Amid the Noise
The most effective strategy during uncertain times is to keep your focus on what you can control. You can’t influence political negotiations or the timing of the next spending bill, but you can manage your investment behavior, your risk tolerance, and your financial plan.
Shutdowns come and go. Market cycles rise and fall. But your financial plan should remain grounded in your personal goals, not the latest headlines. Whether you’re saving for retirement, funding education, or building a legacy for your family, staying patient and consistent will serve you far better than reacting to every twist in Washington.
Remember the Big Picture
It’s easy to get caught up in the constant news cycle, especially during a government shutdown. But history tells us that markets — and investors — who stay disciplined tend to come out stronger on the other side. Rather than trying to predict political outcomes, focus on maintaining balance, clarity, and alignment between your investments and your life.
That’s where real financial stability is built — not in reacting to headlines, but in understanding the bigger picture behind them.