As we key up for Election Day during an already unpredictable year, it’s time to consider preparing your financial assets for potential volatility in the market.
Here are three ways to get ahead of the election’s possible impact on your portfolio:
1. Anticipate, and ask your financial advisor about, potential policy shifts.
An election has the potential to change certain policies that may affect your financial planning. Be in touch with your financial advisor about:
- Tax Rates – Depending on how tax rates change with potential new leadership, you might be affected by both corporate and individual tax rate shifts. This could have a major impact on economic growth, personal income taxes, small business taxes and capital gains taxes.
- Trade – Candidates’ trade policies may create unstable job situations in certain industries. If new trade policies are harsh on specific industries, companies in those fields may outsource labor and create a tighter job market in the United States, ultimately leading to layoffs or relocations. Consider if your line of work may be affected by trade policy changes, and adjust your plans accordingly.
- Regulations – If new regulations obstruct companies’ growth and expansion, some employers will offer fewer job opportunities. Alternately, significant reduction in regulations could lead to costly legal risks associated with employee or product safety. On either side of the coin, changes in regulations could affect your career planning.
- Interest Rates – New policies have the potential to impact interest rates, and the cost of borrowing will likely affect your ability to borrow for a new home, business, college education or other significant investment. Work with your financial advisor to anticipate these potential rate changes and make a plan that aligns with your long-term goals.
- Miscellaneous New Policies for 2020 – There are numerous policies on the table this year, including student loan reduction/elimination, higher minimum wage and free child care. Take a look at whether any of these may affect your financial strategy.
2. Consider flexibility in your financial strategy.
You have a financial plan—but plans change. Your financial advisor is your partner in strategizing around these potential shifts and is there to talk flexibility with you when a change to your plan could be beneficial. During this volatile year, keep an open mind to new opportunities.
For example, mortgage interest rates are currently at all-time lows. Could this be the right time to purchase a new home? Or if you’re close to retirement and suddenly able to work fully remote, does that accelerate your desired housing situation in retirement? Maybe it’s even the right time to discuss reducing some of your investment risk, reallocating investments or introducing hedging techniques.
3. Determine your tolerance for risk and 3-6-12 cash needs.
How do you feel about the current risk of your portfolio? Take a look at it and really consider. Would you still be comfortable if we suddenly returned to the economy of March 2020? If not, maybe your appetite for risk has declined during this challenging year. It could be time to consider new options, even if only for the short term.
A factor to consider when determining your tolerance for risk is your cash needs for the next three, six and 12 months. Small adjustments to your portfolio can help you feel confident that your cash needs will be met for the next year, no matter what happens with the election or the market. This timeframe will also allow markets to adjust to new policies and level out shorter-term volatility.
Whatever your financial strategy and long-term goals, don’t abandon them over potential changes in the fiscal climate due to this being an election year. Even in a volatile climate—during a time of extreme uncertainty from both a pandemic and an election—it’s important to maintain focus on your primary goals. You may need to make some short-term adjustments, but don’t abandon your long-term plans because of volatility in the short term.
Faron Daugs, CFP, is Founder & CEO Harrison Wallace Financial Group.
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