In the past weeks and months, U.S. investors have been confronted with what seems like never-ending bad economic news.

Every time we're confronted with a new set of problems, that sinking feeling returns and people may wonder "Am I doing the right thing?" or "Should I change course?"  

While Standard & Poor's recently downgraded the long-term U.S. debt, the other two credit rating agencies, Moody's Investors Service and Fitch Ratings, reaffirmed the AAA rating. In the midst of more economic problems in Europe, a stock market correction and indications that the growth of the U.S. economy is slowing, investors sought U.S. Treasuries as a safe haven. Our conclusion is that regardless of S&P's comments, the rest of the world sees the United States as one of the best and safest places to hold assets. S&P indicates that the dysfunctional state of U.S. politics was as big a factor as the debt issues in imposing the downgrade.

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There's little agreement as to how the politicians in Washington will resolve the debate over the federal deficit. But taxes don't seem to be falling anytime soon, and it's not too soon to start preparing.

Regardless of the political landscape and some political promises to keep taxes steady, many people say that budget cuts alone won't be enough to eliminate the more than $1.3 trillion national deficit, and states are also facing their own big budget shortfalls. Even if no new policies are enacted to raise taxes, several provisions set to expire within the next two years will result in the restoration of higher tax rates for most taxpayers. The one-year payroll tax cut expires in January 2012.

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According to the student financial aid service, FinAid, college tuition has typically increased an average 8% per year. Remarkably, this is over twice the rate of general inflation and has also outpaced the average annual price returns of the S&P 500 index and the Dow Jones Industrial Average index during the last century, not accounting for dividend reinvestment.

What does it mean when the expected return of your investments is less than the inflation rate of tuition? It means if you expect to save for a future tuition bill, you had better start socking away money now!

The "Trends in College Pricing, 2010" survey published by College Board lists average out-of-state tuition, fees, room and board at $28,130 per year. At an 8% inflation rate, a baby born today and enrolling in college 18 years from now would need to have $450,000 set aside at the time of matriculation to pay for four years of college.

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