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Monthly Investment Outlook - Rising government debt

Wells Fargo Investment Institute - January 2021

Presenter: Brian Rehling, CFA, Head of Global Fixed Income Strategy, Wells Fargo Investment Institute 

Transcript:

Title graphic: Rising government debt

Many American families today have debt. Whether it’s paying interest on credit cards, on a mortgage loan, or financing college tuition — most of us carry some amount of debt in our lifetime.

And, although the federal government’s debt doesn’t operate in quite the same way the average household’s debt does, the basic concept is similar — when spending outpaces income, they go into debt to pay the difference. And most years, the government spends more than it takes in.

In fact, today the federal government’s total outstanding debt is over $27 trillion. That comes to about $83,000 per citizen.

Although it is unlikely that the most damaging effects of America’s fiscal challenges will affect investors anytime soon, there are investment impacts — including lower inflation assumptions over the long term, lower yields, and lower return assumptions.

To account for these potential impacts, investors may want to consider incorporating higher yielding fixed income investments into their portfolio, including: corporate bonds, preferred securities, and emerging market fixed income securities. Furthermore, for investors that can tolerate more volatility and overall portfolio risk, we believe equities may remain a better source of returns than bonds.