Your Financial Future: Many post-election financial questions remain
What will happen now that the election is over? The jury is still out.
It was very close. Neither side should act like they received a big mandate. The Democrats still control the House, but their margin was reduced. It appears that the Republicans will control the Senate.
Wall Street usually likes it when one party does not control all three bodies. This reduces the chance of big, radical changes.
Since the election, the market has been up a little bit. We got a big jump on Monday because of news that a vaccine may be getting closer. While this would be great news, we still have a long way to go to get anywhere near normal.
We are experiencing record new case counts. All 50 states are seeing record numbers of cases. This is a worldwide problem not just in the United States. All of the major pharmaceutical companies and universities all over the world are working on vaccines and cures. There is still so much the scientists do not know. There are concerns about the accuracy of testing, the time it takes to get results and how long immunity last. Will the virus mutate?
The colder weather means more time will be spent indoors where it is easier to get COVID-19. We are also starting the annual flu season. The holiday shopping season is fast approaching. Sales during this time are critical for many companies.
Lawmakers in Washington, D.C., have not been able to agree on a new stimulus plan.
It needs to be targeted to the areas of the economy that are hurting the most. There are difficult decisions that must be made. The airline industry has been hard hit. Many of the jobs may not come back for years, so there will have to be some transitioning for their workforce. The cultural district in Pittsburgh will not open before June, if then. This hurts restaurants and city tax revenue. Some industries such as gyms may never be as busy as pre-pandemic. There will be a new normal.
The stock market is probably way ahead of the economy. Taxes will probably go up. You must control what you can. Most people should keep more emergency money on hand. If there is another shutdown do not expect the stock market to bounce back as quickly as in the spring.
You must determine where you are in the money cycle. If you have 10 or more years to work, you are in the accumulation phase and you can afford to take more market risk if it fits your volatility tolerance. You never want to own an investment that keeps you up at night. If you are closer to retirement, you need to take less risk because sequence of returns risk could ruin your retirement. Start reducing this risk five or so years before retirement. This is the preservation phase.
The number one concern of people in retirement is running out of money. Longevity risk becomes a major concern. Many people will live 25 years or more in retirement. During this distribution phase you must change your investing behavior from when you were younger. Many people want more guaranteed income and might consider creating their own pension plan.
Another area you have control is the amount of taxes you have to pay. Next week we will discuss some tax moves you should consider before the end of the year.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.