National Debt and Deficit Spending

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OpenMinded1
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National Debt and Deficit Spending

Post by OpenMinded1 » Fri Feb 14, 2020 7:19 am

I'm not trying to encourage a political discussion, but for those of you that are retired or nearing typical retirement age, are trends in the national debt and deficit spending effecting how you invest? If yes, in what way? Also, is it effecting when you plan to retire if you aren't already.

I'm very concerned about the national debt and deficit spending, but don't really know if there is anything I can do to protect myself from the possible negative effects when (if) the national debt reaches the tipping point. I'm semi-retired and my wife, who is considerably younger than me, continues to work.
Last edited by OpenMinded1 on Fri Feb 14, 2020 8:06 am, edited 1 time in total.

AlohaJoe
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Re: National Debt and Deficit Spending

Post by AlohaJoe » Fri Feb 14, 2020 7:29 am

I would start by searching the forum and reading the hundreds of previous threads. You'll find lots of good advice in them.

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JoeRetire
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Re: National Debt and Deficit Spending

Post by JoeRetire » Fri Feb 14, 2020 7:40 am

OpenMinded1 wrote:
Fri Feb 14, 2020 7:19 am
I'm not trying to encourage a political discussion, but for those of you that are retired or nearing typical retirement age, are trends in the national debt and deficit spending effecting how you invest?
No.
Very Stable Genius

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Tamarind
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Re: National Debt and Deficit Spending

Post by Tamarind » Fri Feb 14, 2020 7:53 am

I'm not near retirement, but I don't think this would affect my planning.

Economists do not agree on whether national debt has such a thing as a tipping point. To keep this actionable, let's not get into the causes or remedies for governmental deficits or debt. Let us say that you are concerned about a hypothetical future downgrading of US debt or an economic collapse of some kind in the US. Lots of threads on these subjects.

The only thing I imagine you can do is diversify.

You can maintain a healthy and diversified AA with sufficient amounts of both stocks and bonds, remembering that bonds are low risk but not riskless instruments. Given your particular worry, you might want to hold international stocks and bonds at market weight rather than showing home country bias. You might also want to include several kinds of bonds rather than only treasuries. Luckily this is exactly what Vanguard's all in one funds already do, so it's easy.

You can also avoid the noise - by this I mean in particular try not to go down the rabbit hole of any particular theory or group. Lots of people enjoy thinking through dire scenarios online together - it's a form of entertainment. But conspiracy theorists and those who believe the hype too easily collect at the bottom. I would say it's bad for mental health and preparedness to get overly attached to any one particular dire scenario, because you get tunnel vision and miss other things going on around you.

Bob
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Re: National Debt and Deficit Spending

Post by Bob » Fri Feb 14, 2020 9:52 am

At least one concern with having a large national debt is that high interest rates will raise required debt payments, further unbalance the budget and a government will react to the pressure. Perhaps there are historic examples of this one could use to somehow "backtest" potential scenarios?

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birdog
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Re: National Debt and Deficit Spending

Post by birdog » Fri Feb 14, 2020 9:58 am

The $22 trillion in national debt hasn't changed how I invest but I am concerned with that level of debt and with the facts that it continues to rise and there seems to be very little discussion at the government level on getting it under control.

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Sandtrap
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Re: National Debt and Deficit Spending

Post by Sandtrap » Fri Feb 14, 2020 10:01 am

No.
Ignore the noise, spin, facts, non facts, etc.

Actionably: stick to a well strategized long range financial plan that functions regardless of noise. One of the tenets of this forum.

j :happy
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dwickenh
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Re: National Debt and Deficit Spending

Post by dwickenh » Fri Feb 14, 2020 10:07 am

Sandtrap wrote:
Fri Feb 14, 2020 10:01 am
No.
Ignore the noise, spin, facts, non facts, etc.

Actionably: stick to a well strategized long range financial plan that functions regardless of noise. One of the tenets of this forum.

j :happy
+1
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Valuethinker
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Re: National Debt and Deficit Spending

Post by Valuethinker » Fri Feb 14, 2020 10:31 am

OpenMinded1 wrote:
Fri Feb 14, 2020 7:19 am
I'm not trying to encourage a political discussion, but for those of you that are retired or nearing typical retirement age, are trends in the national debt and deficit spending effecting how you invest? If yes, in what way? Also, is it effecting when you plan to retire if you aren't already.

I'm very concerned about the national debt and deficit spending, but don't really know if there is anything I can do to protect myself from the possible negative effects when (if) the national debt reaches the tipping point. I'm semi-retired and my wife, who is considerably younger than me, continues to work.
You can't do much about it, but in theory it should:

- give you a marginally higher preference to hold non US stocks & bonds

- tip your US bond portfolio more towards TIPS (in case the US government and Central Bank find a way to inflate the debt away)

Jags4186
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Re: National Debt and Deficit Spending

Post by Jags4186 » Fri Feb 14, 2020 10:41 am

birdog wrote:
Fri Feb 14, 2020 9:58 am
The $22 trillion in national debt hasn't changed how I invest but I am concerned with that level of debt and with the facts that it continues to rise and there seems to be very little discussion at the government level on getting it under control.
This statement implies that the debt is out of control. I have yet to see any convincing argument that at least suggests the debt is out of control.

The debt can never and will never be paid off. Once you come to this realization you no longer need to worry about it.

The annual deficit could potentially lead to a problems but, I don’t know any way to actionable plan for that other than holding forex.

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Forester
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Re: National Debt and Deficit Spending

Post by Forester » Fri Feb 14, 2020 10:49 am

I think it's quite concerning that budget deficits around the world are so large given that we're not in a recession. A US investor can create a robust portfolio using ETFs which would cope with a period as bad as the 1930s or 1970s but the majority of Bogleheads are disinterested and are stuck in the 60-40 paradigm.

jebmke
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Re: National Debt and Deficit Spending

Post by jebmke » Fri Feb 14, 2020 10:53 am

Forester wrote:
Fri Feb 14, 2020 10:49 am
the majority of Bogleheads are disinterested and are stuck in the 60-40 paradigm.
I have not seen data that suggests this is true.

Anecdotally, I recall seeing a wide range of equity/bond allocations as well as quite a few variations on individual investment mix within each.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Chicken Little
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Re: National Debt and Deficit Spending

Post by Chicken Little » Fri Feb 14, 2020 11:36 am

Valuethinker wrote:
Fri Feb 14, 2020 10:31 am
OpenMinded1 wrote:
Fri Feb 14, 2020 7:19 am
I'm not trying to encourage a political discussion, but for those of you that are retired or nearing typical retirement age, are trends in the national debt and deficit spending effecting how you invest? If yes, in what way? Also, is it effecting when you plan to retire if you aren't already.

I'm very concerned about the national debt and deficit spending, but don't really know if there is anything I can do to protect myself from the possible negative effects when (if) the national debt reaches the tipping point. I'm semi-retired and my wife, who is considerably younger than me, continues to work.
You can't do much about it, but in theory it should:

- give you a marginally higher preference to hold non US stocks & bonds

- tip your US bond portfolio more towards TIPS (in case the US government and Central Bank find a way to inflate the debt away)
+1

MrBeaver
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Re: National Debt and Deficit Spending

Post by MrBeaver » Fri Feb 14, 2020 12:02 pm

OpenMinded1 wrote:
Fri Feb 14, 2020 7:19 am
for those of you that are retired or nearing typical retirement age, are trends in the national debt and deficit spending effecting how you invest?
I'm still many years from retirement. But if your question were changed to ask younger people, my response would be:
  • Save more than I otherwise would – Assume Social Security will not give me any money
  • Prefer Roth to Traditional tax-deferred accounts when the calculus looks close
Both of these stem from the theory that higher debt levels will increase the long-term pressure to raise taxes and restrict expenditure. I hold this view perhaps irrationally in defiance of recent history, where the opposite has happened so far under increased debt loads.

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zaboomafoozarg
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Re: National Debt and Deficit Spending

Post by zaboomafoozarg » Fri Feb 14, 2020 1:35 pm

Forester wrote:
Fri Feb 14, 2020 10:49 am
I think it's quite concerning that budget deficits around the world are so large given that we're not in a recession. A US investor can create a robust portfolio using ETFs which would cope with a period as bad as the 1930s or 1970s but the majority of Bogleheads are disinterested and are stuck in the 60-40 paradigm.
What would such an ETF portfolio consist of?

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btq96r
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Re: National Debt and Deficit Spending

Post by btq96r » Fri Feb 14, 2020 2:25 pm

MrBeaver wrote:
Fri Feb 14, 2020 12:02 pm
I'm still many years from retirement. But if your question were changed to ask younger people, my response would be:
  • Save more than I otherwise would – Assume Social Security will not give me any money
  • Prefer Roth to Traditional tax-deferred accounts when the calculus looks close
Both of these stem from the theory that higher debt levels will increase the long-term pressure to raise taxes and restrict expenditure. I hold this view perhaps irrationally in defiance of recent history, where the opposite has happened so far under increased debt loads.
^^^Co-signing this^^^

Another way to look at the question is in the prism of the Fed's view on how to use interest rates to meet their mandate goals. The higher the national debt gets, the wider each year's governmental deficit will be through debt repayment (though for now we're widening that deficit well enough through spending increases). Low interest rates are the best tool to put that spiral into some sort of suspended animation as the economy grows and governmental revenue increases as a result to help close the gap (that is if spending growth could be restrained alongside).

So, with that, interest rates aren't getting too high anytime soon. That means my retirement investing needs to be geared towards stocks over bonds more so than would traditionally be the median recommendations to get results. Yay for me, more risk pressure. :?
Moderation is for Canadians.

Dead Man Walking
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Re: National Debt and Deficit Spending

Post by Dead Man Walking » Fri Feb 14, 2020 2:44 pm

Debt is a reason that central banks around the world will strive to keep interest rates low. High interest rates would have a dramatic effect on government spending. I consider interest rates when determining my asset allocation. Many investors will assume more risk when interest rates provide little or no real return. Low and negative interest rates are a risk factor from my perspective.

DMW

Shallowpockets
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Re: National Debt and Deficit Spending

Post by Shallowpockets » Fri Feb 14, 2020 2:52 pm

Maybe someone will find a way to package it up and sell it as dirivatives. That would be...oh, wait a minute.

over45
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Re: National Debt and Deficit Spending

Post by over45 » Fri Feb 14, 2020 2:58 pm

OP -

I am in your shoes and am currently trying to decide what to do. Yesterday I watched the FED board confirmation hearings for Judy Sheldon who has advocated sensible sounder money policies -- and she was taken to the woodshed by politicians who support massive printing and intervention in the markets. It's not just the US -- it's every country in the same boat -- and that is what worries me the most. They essentially said that in the next downturn - they will take rates to zero, embrace MMT, and print money until infinity. The bond market is 10x bigger than the stock market and they want to take rates to zero ? Then what?

The national debt will never be paid off. Politicians lie and will not fix anything. They will take us to war, start a pandemic, or do something else to cover up their mistakes and misdeeds. They are trapped. This is uncharted territory. The people who are the happiest are the ones who don't really understand what's going on... and you are smart to ask.

I think the traditional methodology of investing will work a bit longer -- but then it depends which crisis evolves and takes over. So yes I'm concerned about the debt and deficits -- but you ain't seen nothing yet.

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ray.james
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Re: National Debt and Deficit Spending

Post by ray.james » Fri Feb 14, 2020 3:10 pm

As a young accumulator, it is on my mind. I look at it from what factors I can control, if something do/does happen in future.

1) Tax diversification - roth, taxable, tax deferred
2) Discounted social benefits for planning.
3) Inflation hedge with mortgage.
4) Save more.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

Angst
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Re: National Debt and Deficit Spending

Post by Angst » Fri Feb 14, 2020 3:31 pm

over45 wrote:
Fri Feb 14, 2020 2:58 pm
OP -

I am in your shoes and am currently trying to decide what to do. Yesterday I watched the FED board confirmation hearings for Judy Sheldon who has advocated sensible sounder money policies -- and she was taken to the woodshed by politicians who support massive printing and intervention in the markets. It's not just the US -- it's every country in the same boat -- and that is what worries me the most. They essentially said that in the next downturn - they will take rates to zero, embrace MMT, and print money until infinity. The bond market is 10x bigger than the stock market and they want to take rates to zero ? Then what?

The national debt will never be paid off. Politicians lie and will not fix anything. They will take us to war, start a pandemic, or do something else to cover up their mistakes and misdeeds. They are trapped. This is uncharted territory. The people who are the happiest are the ones who don't really understand what's going on... and you are smart to ask.

I think the traditional methodology of investing will work a bit longer -- but then it depends which crisis evolves and takes over. So yes I'm concerned about the debt and deficits -- but you ain't seen nothing yet.
:oops:

What's really needed here is a forum dedicated to hyperbole, not thoughtful discussion.

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Re: National Debt and Deficit Spending

Post by LadyGeek » Fri Feb 14, 2020 3:39 pm

This thread has run its course and is locked (economic policy). See: Non-actionable (Trolling) Topics
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