Let’s Talk about Debt (Including How to Get out of It)

Americans’ debt is growing. Should you be concerned?

We are a nation in debt. According to the Federal Reserve’s most recent report on household debt and credit, total American household debt increased by $87 billion in the third quarter of 2020.

From a macroeconomic perspective, higher debt levels can be positive because they indicate that banks are comfortable lending; they can also lead to increased consumer spending, which drives economic growth.

As an individual, however, you should generally seek to lower your debt, especially as you near retirement, when you may want to live more modestly.

If you are in debt, you may want to look into ways to pay it down. High interest rate debt, such as credit cards, should generally be paid off first. Low interest rate debt, such as mortgages, should generally be paid off last (especially if the interest is tax-deductible, as mortgage interest often is).

Many people struggle to determine if they should pay off debt or save for retirement first. There is no one-size-fits-all answer, but the conventional wisdom is that you should pay off debt first if the interest rate on it is higher than the income you can earn by saving and investing. The “magic number” will vary by individual.

Some people also ask if they have extra money, which should they do first: pay off debt or invest? If the interest rate on your debt is low and you can get a higher rate of return by investing, you may want to consider investing before paying off your debt. You could also use some of the extra money to pay off debt and some to invest.

If you’re concerned about debt, call us or email us for some professional input. The more information you have, the better prepared you can be, and we are always here to help.

5 Compelling Reasons to Invest in Small-Cap Stocks

Small-cap stocks appeal to some investors because of their potential for strong growth. But are they right for you, right now?

Small-cap stocks are easy investments to understand. The market capitalization of a company is its stock price times the number of shares it has outstanding. While the definition varies, small-cap stocks may include companies with $250 million to $2 billion in market capitalization.

Small-cap companies are agile. Small companies may have greater growth potential than larger companies. Generally speaking, smaller companies are generally more nimble than larger companies, so decisions about new products and services and adjustments when problems arise can be made and implemented quickly.

Small-cap stocks may perform well when markets are down and improving. It is generally thought that small-cap stocks can perform better than larger-cap stocks when markets have been down and are improving.

Small-cap stocks may perform well in rising interest rate environments. Small-cap stocks also tend to perform well in rising interest rate environments. Today, we are not in a rising interest rate environment, but that could change.

The time may be right for small-cap stocks. You probably know, however, that it is wise to avoid trying to time the market; it is generally better to choose an appropriate asset allocation for your risk tolerance and financial goals and stay the course. It’s always a good idea to have diverse investments in your portfolio.

Do you need help investigating small-cap stocks for your portfolio? I’m here for you. Please contact me today, and we can make sure that you aren’t missing anything from your asset allocation.