With election day just five days away, much uncertainty looms especially in the area of finances. Historically, presidential elections invite temporary financial volatility. So how can the 2020 election impact your personal finances and what can you do about it? ELP Budgeting Services is breaking it all down.
The Stock Market
If you have a retirement or a brokerage account you are an investor. Investors are likely to see volatility in their portfolios. Stock market performance is largely based on emotion. When people feel scared and uncertain, their investing strategy often reflects it. The year leading up to presidential elections are riddled with uncertainty. For this reason, stocks and bond markets return 1-2.5 percent less to the investor.
Historically within a year after an election, bonds tend to outperform stocks. Stock market performance is less impacted by which political party wins, and more dependent on if there is a change of hands. Should President Trump remain in office, historically returns may be around 6.5 percent. Should Joe Biden win the bid, historically returns average around 5 percent. In conclusion, change scares investors.
What can you do to ride the wave of expected stock market volatility?
Diversify your portfolio
Build in extra security through equities, while maintaining a posture for portfolio growth given your risk tolerance.
Invest for the long-term
The old saying goes “don’t make permanent decisions on temporary emotions.” Don’t allow fear to hold you back from investing. While market dips are inevitable, so are market spikes. Your portfolio will recover.
Taxes are always on the forefront of a presidential candidates running platform. It’s a primary source of contention and criticism at presidential debates, often leaving Americans scratching their heads at how their taxes will really be impacted.
While the candidates have made their tax plan known, few Americans realize what happens is largely dependent on Congress. Control of the Senate is paramount to any change in tax policy occurring.
So, what can you do to protect your money against changes in tax laws?
Lower your taxable income by:
Work closely with your accountant to see which tax-deductions you can benefit from given the tax laws.
Invest in tax-efficient accounts
Pour money into retirement accounts that reward you tax wise.
Donate to verified non-profit organizations
Let your motivation be to do good, but reap the tax benefits as a result.
COVID-19 and the Economy
COVID-19 has invited unprecedented economical impacts. The 2020 president-elect’s plan for COVID-19 economic stimulus will have a major impact on the economy’s speed to rebound or continuing decline.
The pandemic has also impacted the election process by a large increase in mail-in voting. This process will likely leave Americans without a clear answer of who the winner is beyond November 3. As we discussed earlier, markets do not like uncertainty so expect market volatility.
So, what can you do?
Do your part to slow the spread of COVID-19.
Support businesses without blowing your budget.
And Now We Wait
Much like who the President will be is unknown, exactly how personal finances will be impacted is too. However, we can leverage historical trends and prepare the best way we know how. What is promised is that, “what goes down must come up.” Don’t panic. We’re in this together.