Know Your Finances

 One thing is for certain about the investment business – it ALWAYS keeps us guessing.  We all know that economists get it wrong about as often as they get it right and that they can fudge their “rightness” or “wrongness” depending on when their predictions prove true. Someone can predict that inflation will hit our economy hard but the question is when, in three months or three years?

The trillions (as of March 30, $12 trillion was approved and $4 trillion of that was spent) of treasury dollars employed to save our financial system and economy has pushed our national debt as a percentage of Gross Domestic Product to more than 80 percent. To put some perspective on this percentage, after WWII it got even higher, more than 100 percent, and stayed high until 1950. Throughout the 1970s debt levels settled down below 40 percent but started climbing again in the 1980s. Between 1990 and 2008 debt as a percentage of GDP averaged about 63 percent a year. So, what does it all mean?

 As a nation we compete globally for financing. Country leaders analyze other countries the same way analysts do due diligence on companies to potentially invest in; by tearing apart the financial statements, sizing up management capabilities, comparing to peers, and making assumptions about growth, solvency, and valuation in the future. Overly leveraged (laden with debt) companies and countries are avoided like the plague. Too much debt is risky since companies and countries may have difficulty paying interest on their borrowings and may default on the principal. Also, if interest rates increase they may have even more difficulty borrowing additional funds at the higher expected rates. But, other factors come into play in addition to the nuts and bolts of numbers on financial statements.

 Our country’s infrastructure, even despite the turmoil and catastrophe of our financial system of late, is considerably better off than most countries on the globe. That’s right. Our legal system, warts and all, is strong and protective of individual and corporate rights; our free market business structure, though evolving, remains innovative and productive; our education system, though not superb, is still quite excellent and more than capable of supporting individuals to develop skills and reach their potential. And this is why both domestic and foreign investors will continue to believe in our country and buy our debt securities. We may be over leveraged. We may have severe economic health issues that will take many months of healing. And we may have enemies galore around the world. But we sure as heck have so much going for us vis-à-vis our global “competitors”.

So, where am I going with all of this talk about our national debt?  Will all this debt bring on inflation?  Why would that happen and in what time frame?

 As an investment advisor it is my job to continually dissect the economy and determine the safest assets for my clients. Asset allocation is unique to each individual, determined by factors including age, tolerance for risk, existing size of assets, annual income and expenses, and annual cash-flow requirements. Strong asset allocation management also depends on the valuation of each asset category.

 In upcoming columns I will discuss the economic possibilities for inflation and deflation, and protective investments for each scenario.

 In the meantime, I look forward to receiving your questions about anything related to investments, retirement planning, or the economy. Send them to: ellen@ascendcapmgt.com and write “Chadds Ford Live” in the subject line.

About Ellen Le

Ellen is the Founder and President of Ascend Investment Management. She was born in Philadelphia and has lived in the Delaware Valley for most of her life. When she is not researching investments and managing portfolios, she pursues her interests in tennis, bridge, hiking and art. Beginning her investment career in 1981 as a stockbroker at E.F. Hutton and Co., Ellen now has over 20 years of investment management experience. Prior to founding Ascend in 2006, she managed high net worth assets for many years at Bank of America, Mellon Bank, and most recently at Davidson Capital Management. At Davidson Capital Management, Ellen served as a Senior Vice President and Senior Portfolio Manager of the firm. She managed assets for more than 50 family relationships and was a core member of the firm’s Investment Committee.Ellen earned a BA in History from Brown University and a MBA in Finance & Investments from The George Washington University. She is a member in good standing of the Chartered Financial Analyst (CFA) Institute, which is a global organization dedicated to setting a high ethical standard for the investment profession. Her professional memberships include the Delaware County Estate Planning Council, Women Enhancing Business (WEB), and the Chadds Ford Business Association. She is a docent with the Delaware Art Museum and an active volunteer with the Brown University Alumni Association.

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