As the presidential election approaches, many investors are on edge about how the outcome may influence their financial portfolios. However, financial advisors are increasingly concerned about a less-discussed issue: public debt. According to a survey by Natixis Investment Managers, 68% of U.S. financial advisors and 64% of their global counterparts rank public debt as the top economic risk on the horizon. "Regardless of the election results, advisors are convinced public debt will continue to escalate," stated Dave Goodsell, Executive Director of the Natixis Center for Investor Insight.
Public debt, also referred to as national or federal debt, accumulates when the government borrows to cover expenses it can’t fund through current revenues, similar to a consumer relying on a credit card without fully paying off the balance monthly. Currently, the U.S. national debt exceeds $35 trillion, a figure that continues to climb. This burgeoning debt, paired with potential future shortfalls in Social Security and Medicare, poses significant challenges for the upcoming administration.
Given the growing complexity of managing future retirement funding, Goodsell noted that more individuals anticipate needing to independently secure their retirement finances. Financial advisors recommend certain strategies to mitigate these broader economic risks. "While you can't control congressional fiscal policy, you do have control over your personal financial choices," advised Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth.
A balanced, diversified portfolio can protect investments against market volatility. As the stock market hits unprecedented levels, investors have inflated expectations for returns—anticipating 15.6% above inflation—while financial experts caution that 7.1% above inflation is more pragmatic. Incorporating non-correlated assets like bonds can help manage risks. "For international exposure, both U.S. and global bonds are worth considering," suggested Barry Glassman, founder of Glassman Wealth Services.
Potential increases in national debt might lead to higher taxes. While future tax rates remain uncertain, Cheng highlighted the benefits of holding a mix of tax-deferred, tax-free, and taxable accounts. Roth IRAs and 401(k) plans offer the advantage of tax-free growth, while other accounts like 529 college savings plans or health savings accounts provide tax benefits for eligible expenses.
In addition to navigating national fiscal challenges, addressing personal debt is equally important. "Shocking levels of consumer debt charging upwards of 10% interest annually are a concern," Glassman remarked. Maintaining good credit by making timely payments can significantly lessen the financial burden of personal debts, making it easier to obtain lower interest rates on future loans, from auto to mortgage costs, and can even bring down car insurance premiums.
