Here’s How The National Debt Could Affect Your Investments

0
4
sustainable debt RP Debt Baskets debt capacity GEO Debt Documents Soaring Margin Debt highest household debt Federal Borrowing Gen Z ripped off

Over the last 30 years, the U.S. has steadily increased its national debt from $4 trillion to $28.43 trillion through December 2021, according to government data. And it crossed the $30 trillion mark for the first time in early 2022. New economic modeling from The Concord Coalition shows that as the government borrows more money to pay off debt, it can affect individuals’ net wealth. Let’s take a look at how the national debt can impact your savings and investments.

Whether you are looking for retirement or investment advice, a financial advisor could help you create a financial plan for your needs and goals.

Q2 2022 hedge fund letters, conferences and more

 

How Much Debt Does the U.S. Have?

Fiscal Data, a hub for federal financial data, shows that the U.S. national debt has reached $30.5 trillion through July 6, 2022, with the debt crossing the $30 trillion mark for the first time in late January of the same year.

Economic modeling from The Concord Coalition, a national group advocating for fiscal responsibility, also reveals that when the U.S. government borrows money, it not only affects individual net wealth, it can also have a negative effect on the savings and investments of future generations.

“The national debt is an asset to individuals who purchase government securities and a liability to taxpayers,” writes Steve Robinson, chief economist for The Concord Coalition, in a brief. “To the extent individuals accumulate wealth to maintain consumption in retirement, an increase in the national debt will crowd out other savings and investment.”

How Can the National Debt Affect Your Finances?

As the national debt continues to rise, it increases the chance of the U.S. government defaulting on its debt service obligations. At that point, the Treasury Department would likely increase rates to help make new Treasury securities attractive to investors.

As Treasury rates rise, corporations operating in the U.S. could be viewed as less attractive, driving up rates on corporate bonds and potentially hurting stock prices. As a result, this would likely require companies to raise the price of their products and services, causing people to pay more. All of this together could trigger inflation, which the U.S. currently faces today.

The amount of debt the U.S. currently holds will also likely have an effect on many government programs that millions of Americans need to survive, especially if it goes into default. Here are three specific programs that could be impacted:

Social Security: Many Americans fund Social Security through a tax on their paychecks. And according to the Social Security Administration, it expects to be payable in full on a timely basis until 2037. However, the U.S. national debt increasing and possibly going into default could delay those payments.

Medicare and Medicaid benefits: The federal government not being able to pay its bills could send a shock to those who rely on Medicare and Medicaid as it could delay payments for many Americans.

Housing: The U.S. Department of Housing and Urban Development (HUD) helps low-income families, seniors and people with disabilities get into affordable private or government-owned rental housing. High national debt could impact those programs.

How To Safeguard Your Investments From Debt

Staying ahead of the national debt isn’t easy. Savvy investors will need to keep an eye on the national debt when it comes to structuring their portfolios, planning for retirement income and considering estate-planning needs.

To mitigate risks from interest rate hikes and inflation, investors could diversify their portfolios with investments that keep pace with inflation. One smart inflation investment includes Treasury inflation-protected securities (TIPs), which increase investment principal with inflation and decrease with deflation.

Another inflation-savvy investment includes real estate, which traditionally keeps up with inflation over time. And investment vehicles that invest in property such as real estate investment trusts (REITs) can also outperform the market when inflation is highest.

Finally, another common investment associated with inflation hedging includes commodities. The price of these assets typically rises when inflation accelerates. The price of commodities used to produce goods and services goes up when the cost of those goods and services increases during inflation.

Bottom Line

The national debt is typically under discussion no matter which political party has control of national public office. But what’s in your control as an investor is how you protect your financial plans going forward.

Tips for Investing

  • A financial advisor can help you understand how fiscal policy and other economic factor impact your finances. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • To pay for a deficit, the government issues several different types of Treasury securities. Learn what they are and how each one can help with your financial planning in our article on the subject.

“The post Here’s How the National Debt Could Affect Your Investments appeared first on SmartAsset Blog .”

Updated on