Financial planning may be one of the most widely misunderstood services as far as the public is concerned. When you ask the typical investor what it is, you get a myriad of answers. Moreover, it is too often used to increase the sales of various financial products rather than as a diagnostic tool. In this post, we'll look at how the planning process can enhance the investor's bottom line.
As many of you who have been following this blog know, the financial planning tool I use is one which I created from an Excel spreadsheet. In addition, I use an add-in called Crystal Ball for Monte Carlo simulation, decision table analysis, optimization and so forth. About six months ago I had a thought pertaining to the mountain of debt accumulating in Washington.
Sometime around 1950, the U.S. debt-to-GDP ratio was higher than it was even recently. However, back then, economic growth was good and federal expenses were reduced due to the end of WWII. As a result, this ratio fell quite rapidly. On a chart, it looks like a typical mountain peak.
In 2014, it is elevated, but with a demand-starved recovery and poor fiscal policy, the recovery is the weakest in the post-WWII era. Moreover, even though our fiscal deficits are falling, the debt continues to rise and, according to the Federal Reserve, sometime around 2022, the entitlement programs will again cause our deficits to rise and our debt as well. In fact, we may see our "official" debt somewhere around $20 trillion to $25 trillion by 2025. How will we repay this debt and avoid default?
