A voter fills out a ballot at a polling place at the Elena Bozeman Government Center on September 20, 2024 in Arlington, Virginia.
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Many investors are worried about how the results of the presidential election will affect their investments.
But another risk that financial advisors are watching is public debt, according to new research from Natixis Investment Managers.
The survey of 2,700 respondents from 20 countries, including 300 U.S. advisors, found that most U.S. advisors (68%) cited public debt as their top economic risk, compared to 64% of global advisors. % also answered the same way.
“Regardless of who wins the election, the public is confident that public debt will continue to rise,” said Dave Gussel, executive director of the Natixis Center for Investor Insights.
The term public debt is used interchangeably by the U.S. Treasury Department with national debt and federal debt.
Governments borrow to pay for expenses over time, comparable to a situation where individuals use credit cards and are unable to pay them back in full each month. The US national debt is currently over $35 trillion and rising.
The next U.S. president and Congress will inherit a government spending dilemma, with the end of trust funds for Social Security and Medicare looming.
Goodsell said Natixis research found that more people believe they can fund their own retirement.
Experts say there are certain steps retail investors can take to limit their financial exposure to this wide range of risks.
“You can’t control what Congress does, but you can’t control what Congress does,” said Margherita Chen, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. “You can control how you plan, how you save, how you invest, and how you react to news.” Chen is also a member of the CNBC FA Council.
Diversify your portfolio
It protects you from volatility risks and helps you maintain proper diversification to avoid chasing returns or timing the market.
“Especially at this point, you need some risk offset in your portfolio, something that’s not correlated to equities,” Goodsell said.
As the stock market reaches all-time highs, investors are gradually increasing their expectations for higher returns.
Natixis research found investors expect returns of 15.6% above inflation, but financial experts say about 7.1% above inflation is more realistic, Goodsell said. he said.
He said bonds could offer an opportunity to reduce equity risk.
Barry Glassman, a certified financial planner and founder and president of Glassman Wealth Services, said investors may consider both U.S. and international bonds to diversify. . Bonds with longer durations tend to carry more risk. Mr. Glassman is also a member of the CNBC FA Council.
For investors worried that the country’s debt could lead to slower growth, it could help add international exposure to their portfolios, Chen said.
adjust tax burden
Increasing national debt means that taxes may also increase.
“We cannot predict what future tax rates will be,” Chen said.
Holding funds in a combination of tax-deferred, tax-free, and taxable accounts is useful because it gives investors the flexibility to limit taxable withdrawals.
Roth individual retirement accounts and 401(k) plans allow savers to invest after-tax funds toward retirement. Other types of accounts, such as 529 college savings plans and health savings accounts for medical expenses, may give you tax benefits on money you spend on qualified expenses.
reduce personal debt
While the US national debt is high, consumer debt is also increasing.
“The sheer size of the outstanding debt, which is more than 10% per year, is shocking,” Glassman said.
To keep track of these balances and their costs, Chen said it helps to have good credit.
Consumers can reduce the cost of debt by paying their bills on time, which can help them borrow money at favorable interest rates for everything from cars to homes, and even reduce the cost of auto insurance. he said.
