Every night in the news or in any news article we read we here about the government spending trillions of dollars on some new bill that's going to change the world. As our national debt snowballs it makes one wonder, will it become a serious problem at some point?
I believe so, considering present trends. I don't think any country can increase its debt faster than its GDP growth forever. Which begs the question... should you get out of the market? The answer may surprise you.
Should You Get Out Of The Market?
No. The answer is no and for several reasons. The reasons are that we don't know when or even if this will become a serious problem and we also don't know how markets will respond when and if it does. All we currently know is that if the growth of federal debt is greater than the growth of the GDP it could result in negative consequences at some point.
But the problem with assuming this is inevitable is that we are extrapolating. We're basically saying that we are driving towards a cliff which is 60 miles away at 60 mph. And if we keep that current speed we will drive off the edge of the cliff in one hour. But is that a reasonable conclusion? I'm betting that at some point within the next 60 minutes we're going to slow down and turn away from the edge of the cliff or even stop the car all together.
Relating this example back to debt, we don't even know how far away from the edge of the cliff we are. We assume that if we stay on current trends that we will certainly get into trouble at some point, but in the same breath we acknowledge that we don't even know where that point is.
Many of us thought that point was $10 trillion dollars ago and every day since. But the world kept moving and people continued investing in the country with the highest quality debt on the planet, The United States of America.
When Will We Know IF We Are Getting Close To The Edge OF The Cliff?
It will probably be rising interest rates that will warn us if and when America's credit begins to slip. And we will probably know the slip is coming when we as a nation begin having trouble rolling over our debt and finding buyers for our new debt. When and if that happens, we as investors will have some decisions to make, but we'll have plenty of time to make them. Until then make a plan and work your plan continuously.
You cannot make a long term, goal focused, planning oriented investment plan out of what if scenarios. And the national debt might be the mother of all "what if" scenarios. I would also add it's never the known unknowns that get us. It's the mistakes we make trying to anticipate the unknowns.
You Need A Plan
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I started this firm specifically to help electric cooperative employees with retirement planning. I worked for an electric cooperative for 11 years and I know your profession and benefit plans better than any other financial advisor will. You have excellent retirement benefits available to you. I can help you optimize those benefits while creating a retirement income and investing plan that aligns with your retirement goals.
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80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help Electric Cooperative Employees create their retirement income and investment plans.
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