If you listen to news reports, read newspapers, listen to radio or use the Internet, you cannot escape the latest news about the economy. Among the terms used are debt and deficit. Both of these terms have a significant impact on individual investing. 

You hear a lot on these topics in the news but a disturbing few people understand the actual meaning of these words. It is especially confusing when the words are tied with stimulus spending and bailout conversations.  

Let’s start with simple definitions.

Debt is owing to someone else, in most cases money, for goods or some other form of personal service but delaying the payment. Each person who has debt has made a promise to re-pay the debt at some future time. 

Considerable money can be made by holding debt, if you are the person lending. This can be done in the form of an investment. Most of us commonly consider our personal debt when we discuss debt and completely understand our debt situation.

The term deficit is frequently used when the federal government spends more money in a fiscal year than it collects in tax revenue. This spending beyond income creates a budget deficit. 

In the rare instance when government expenditures are less than tax revenues, the result is a budget surplus. Budget deficits occur personally but obviously do not make the news. You are painfully aware when you spend more than you make and typically make quick adjustments to stay financially viable. 

How can the government spend more than it collects? Simply by borrowing money. The total amount owed by the federal government is called the national debt.

The federal government guarantees the timely payment of principal and interest. Individuals, corporations, state and local governments, foreign governments, and others are willing to lend money backed by the good faith and credit of the United States of America.

Although Treasury securities pay relatively low interest rates, they tend to appeal to investors seeking lower risk. In some cases this may seem like many personal budget and spending habits. 

There is also quite a bit of borrowing between federal agencies. For example, Congress has long been in the habit of borrowing excess Social Security revenues. As a result, the national debt is divided into two categories: debt held by the public and intragovernmental holdings. 

As you can imagine, there’s considerable debate over how long the government can keep borrowing to finance spending.

Regardless of how you feel about government spending, you might benefit from understanding the terminology and where you would want to invest your money.

Many people are becoming uncomfortable investing in municipal bonds. These are the public debt from towns and cities to build government buildings, roads, etc. But recently, cities and towns have had financial difficulties, calling their pay-back abilities into question.

Instead, investors are looking at more private notes or corporate bonds. The plus to these financial instruments is that they have a higher potential return. The downside is that they can have a potential higher risk. This is something each investor must weigh himself. 

There are several forms of debt investments in which you are one of a group of lenders and can receive monthly dividends.

Some people like this type of investment as they get confirmation that they are routinely making money on their money. Many use this approach as a monthly income, and when the investment sells, they get their principle back. 

Other investment options are DSTs (Delaware Statute Trusts) that have title to a specific property. LPs (Limited Partnerships) also specifically loan to individuals or corporations as second notes or bridge loans.

These also can have potential higher rate of return due to the higher risk and they participate in the growth or capital gain of the property. Additionally there is the traditional bond that you can purchase individually or in groups through mutual funds.  

I have discussed all these types of investments in past articles. If you would like further details about a specific investment visit the Triton Web site, hover over “Columns” and click on “Yachting Capital”  for past articles. 

Information in this column is not intended to be specific advice for anyone. You should use the information to help you work with a professional regarding your specific financial goals.