The next time you’re in Times Square and want a moderately alarming experience, consider walking to the Bank of America Tower on West 44th Street. There you’ll find the National Debt Clock, a digital billboard with a running tally of the U.S. national debt. Today, it clocks in at more than than $37 trillion, or around $109,000 per person in the U.S. In 2021, that number was around $84,000 per person.
This increase is in large part because of how it swelled during the COVID-19 pandemic like an expandable water toy dropped in a bathtub. The national debt rose from $26.9 trillion in 2018 to $34.1 trillion in 2023.
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It’s become so concerning that the three major credit rating agencies downgraded the U.S. federal government’s long-term debt. It’s only the second time in history that this has happened. The country now has a worse credit rating than Microsoft Corp. (ticker: MSFT) and Johnson & Johnson (JNJ), despite the fact that neither company can literally print its own money. Not even President Donald Trump’s tariffs could sway the agencies to raise their ratings.
The U.S. national debt is larger than its gross domestic product — over 120% of GDP, in the first quarter of 2025, according to the St. Louis Fed — and it’s only expected to grow. Here’s how investors can address concerns raised by rising debt levels:
— Why investors should care about the national debt.
— Why is the national debt so large?
— The national debt’s impact on investments.
— The national debt and your taxes.
— Maintaining balance in the short term.
— Mitigating long-term risks.
Why Investors Should Care About the National Debt
The national debt may seem as far removed from your investments as your parents’ debt is from your bank account. But like your parents’ debt, if the federal government’s budget deficit
grows too large, it could impact your daily life and investments in a painful way.
Not to be confused with the deficit, federal debt is the total amount, or the collection of deficits throughout the years, owed by the government. The deficit is the difference between the government’s revenue — which mainly comes from taxes — and its expenses, such as national defense, health care, education and other programs, for a particular period. When expenses exceed revenues, the government has a deficit on the books for that budget period.
Before things start to sound too dire, remember that the U.S. government has more financial strings it can pull than individual consumers like your parents.
“Unlike a household, the government can tax and issue currency, so it will never go broke,” says David A. Schneider, a certified financial planner and president of Schneider Wealth Strategies.
Why Is the National Debt So Large?
The deficit and the overall national debt have risen to such heights in a short period because the economy slowed down due to the pandemic, leading to a severe flash recession. This triggered the government to increase spending by around 50% to address the fallout and speed up economic recovery.
But it isn’t just pandemics and national crises that cause the national debt to swell. Any government spending can impact the government’s balance sheet. For example, the Congressional Budget Office estimates the One Big Beautiful Bill Act, which was signed into law on July 4, 2025, will add $4.1 trillion to the national debt through 2034. If it becomes permanent, it would add $32 trillion, though that number isn’t adjusted for future inflation figures.
The U.S. government is limited in the amount of money it can borrow to fund its operations. This limit is known as the debt ceiling. Congress holds the authority to raise or suspend the debt ceiling as it sees fit.
There have been many moments in history when Congress has done exactly this in order to meet budget priorities. Failing to change the debt limit would lead the U.S. government to default on its debt obligations. Congress has raised the debt ceiling, temporarily or permanently, 78 times since 1960. The most recent occurrence was in June 2023, when Congress voted to suspend the ceiling. In January 2025, that limit was reinstated at $36.1 trillion.
Note that the debt ceiling only limits how much the U.S. government can borrow to meet its existing obligations, not a limit on how much the government can spend. When this ceiling is reached, the government can take what’s known as “extraordinary measures” to keep paying its bills without exceeding the limit. This is the card trick the government pulled in January 2025.
“The national debt is a lot less scary when you realize that most U.S. Treasury securities are held by American investors, pension funds, banks and even the Federal Reserve,” Schneider says. “We owe this debt to ourselves as a nation.”
As of June 2025, American investors, funds and governments owned over three-quarters of the national debt.
“This means interest payments are circulating right back into the U.S. economy,” Schneider says.
The National Debt’s Impact on Investments
Investors need to be aware of what rising national debt means for the future of the economy and financial markets.
More government bonds can often lead to higher interest rates and lower stock market returns. When the U.S. government issues more Treasury securities to cover its budget deficit, the market supply of bonds increases and investors tend to demand a higher interest rate to compensate for the increased risk.
While bonds can provide investors the benefits of cash preservation and fixed income, they carry interest-rate risk. Bonds and interest rates have an inverse relationship. When interest rates rise, newly issued bonds are more attractive than existing bonds because they provide investors with higher yields. As a result, prices on old bonds paying lower interest rates tend to fall.
The Federal Reserve controls short-term interest rates through the federal funds rate, but market forces determine the rates paid on Treasury securities, which are sold at auction. The fed funds rate and Treasury rates are closely watched and related, and each rate, especially the 10-year Treasury when it comes to government debt, is a benchmark of sorts that pushes up or pulls down long-term interest rates consumers are offered via new mortgages or student loans.
As debt takes a bigger chunk out of their budgets, investors have less income available to invest. Fewer dollars in the market means fewer opportunities for the power of compounding to work its magic.
As far as stocks are concerned, the 10-year Treasury yield is commonly referred to as the “risk-free” rate of return: You can safely assume you can earn whatever return the 10-year is offering without the U.S. government going into default. As 10-year yields rise, more and more pressure is put on stock market valuations. Stocks are famously risky, so investors will demand the risk-free rate plus some premium in the form of a price discount in order to make stocks worth the risk.
The high cost of debt works against investors in another way: As consumers’ budgets get tighter, so do their purse strings. When people stop spending on goods and services, company revenues tend to take a hit.
The National Debt and Your Taxes
There are other indirect, although potentially even more damaging, ways the national debt can impact your portfolio.
“As the debt continues to rise, the government will need to raise revenues,” says Brad Clark, investment advisor representative and founder of Solomon Financial. “Today, they are attempting to do that through tariffs.”
As many consumers already know, companies are likely to pass these higher costs onto consumers. This can cause inflation, which erodes investor purchasing power.
And if the tariffs are insufficient, they may need to increase tax revenues, too, Clark says.
Translation: You may also face higher tax rates in the future. Like inflation, taxes erode your portfolio’s value.
Maintaining Balance in the Short Term
Before you start to panic, know that this is a long-running issue and one that’s unlikely to implode in the near future.
“While debt could matter in the very long run, it probably isn’t the ticking time bomb that many fear,” Schneider says.
It’s also probably not worth your brain power to worry about since it’s largely outside of your control. Instead, experts advise focusing on the elements you can control, such as saving, living within your means, maintaining a proper asset allocation for your goals, investing consistently in both up and down markets, and tax planning.
“Proactive tax planning is key,” and requires “a balance between the current known legislation, future legislation and the individual’s holistic financial situation,” says John Jones, a certified financial planner and investment advisor representative at Heritage Financial.
For example, you might consider investing more in a Roth individual retirement account to reduce future taxes, Clark says.
Mitigating Long-Term Risks
If you are still wary of the national debt’s impact on investments, there are a few steps you can take to reduce its potential impact on your investments.
The first is to use real assets like commodities and real estate or Treasury inflation-protected securities, known as TIPS, to combat inflation. The reason inflation is a concern is because if the government decides to repay its debt, it could do so by printing more money. More money in circulation reduces the value of each dollar.
Municipal bonds are another investment option, as state and local governments have borrowing limits that help control their debt levels. These bonds are generally safer than corporate bonds. They’re also exempt from federal taxes and may be exempt from state and local taxes if you buy your home state’s bonds.
You don’t have to shy away from the equity market entirely, though. Aim for a balance of domestic and international stocks. Diversifying outside of the U.S. can help stabilize your portfolio in different economic conditions, Clark says.
Keep in mind that the stock market tends to be a bit nearsighted. Given that the debt is a long-term concern and the market looks at short-term performance, debt levels may not be an immediate concern for the stock market.
Ultimately, “long-term investment returns are driven by economic growth, corporate profits and innovation, not the national debt,” Schneider says.
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How the National Debt Affects Your Investments originally appeared on usnews.com
Update 08/27/25: This story was published at an earlier date and has been updated with new information.
