Lately, it seems we can’t go a single day without some political news that throws us into turmoil.
Not only that, but there seems to be a lot of uncertainty about what happens next with major legislation. Two major items of interest are a promised bill addressing tax reform, as well as speculation that the Republicans will attempt another ACA repeal after the first of the year.
Both of these pieces of legislation have the potential to impact your finances. As a result, it’s important to protect your finances, no matter who’s in charge and what happens next.
Stay the Course – Until You Know More
First of all, stay the course with your own long-term investing plan. Even with all the intrigue and hysterical headlines, it’s mostly business as usual for long-term investors. Even with recent daily volatility and drops, the Dow remains above 22,000. Even if the Dow drops dramatically in the coming weeks, it is likely to recover over the long haul.
Don’t let the noise of DC influence you into suddenly changing course. Sometimes change can be good. But it shouldn’t be made based on the rumors of the moment. While you’ll never have perfect information, it’s possible to have enough information to make better choices.
Stay the course until you have a better picture. Then, only make changes if it looks as though fundamental shifts are on the way.
Don’t React to Proposed Legislation and Leaked Budgets
Washington is full of leaks right now. While the stock market sometimes reacts to leaks of proposed legislation, it doesn’t mean you should.
Remember that proposed legislation and department budget proposals are just that: proposed.
Leaked (and official) budget and tax proposals are not binding. Congress still needs to create laws that set budgets and change laws that impact your investments and taxes. This can be a time-consuming and cumbersome process. Don’t change your strategy based on what might never come to pass.
Also, keep in mind that most policy doesn’t take effect immediately. Whatever comes as a result of healthcare and tax reform, there will likely be lead time to take measured, thoughtful action with your portfolio. Communicate with a financial professional about possible responses, but don’t do anything until proposals become more concrete.
Keep an Eye on the Fed
The Federal Reserve is expected to continue implementing measured rate hiks. Making decisions based on market volatility or the latest news headline isn’t the way to go. But that doesn’t mean you should ignore everything that’s happening.
As interest rates begin to rise, look for opportunities. If you are concerned about volatility, rebalancing your portfolio might not be a bad thing. As rates rise, CDs and savings accounts see slightly higher rates. Rebalance by selling higher stocks at a profit and move the money into other investments.
Consult a financial professional if you decide to make this switch, though. Too often, we ignore the tax consequences that come with such adjustments. A measured approach can help you manage your tax bill as you carefully rebalance.
Watch Out for Debt
The recent low-rate environment has provided opportunities for leverage. Using inexpensive money can be one way to make the most of your situation. Some debt comes with tax advantages that reduce the long-term cost. Other times, it’s more efficient to use debt because you can put your money to better use with higher potential returns.
However, with uncertainty ahead, and more Fed rate hikes probably on the way, debt could get more expensive. Now might be the time to start paying off debt before it becomes more expensive.
Review your debts. Consult with your financial advisor about how to create a plan to de-leverage and shore up your finances so you aren’t stuck with obligations if the current uncertainty turns into something more challenging.
Know Your Objectives
Have you sat down and considered what it is you want your money to do for you?
Paying too much attention to what’s happening in Washington can move your focus off your own goals and objectives. It’s tempting to react to what’s going on and ask what it means. However, your finances are better off when you start with your own objectives and then consider how actual policies (not leaked proposals) will help or hinder your efforts.
A trusted financial professional can help you stay on track. A third party can help you set reasonable goals for your long-term and short-term money management needs. Your financial advisor can also help you identify the “why” behind your goals and create a plan lasts through subsequent administrations and their shifting policies. There are also plenty of money tools out there to help you succeed.
When you understand that money is a resource, it’s possible to see the opportunities in almost any situation. Your financial advisor can remind you of the big picture, and help you identify the opportunities and pitfalls of potential changes.
No matter how crazy things get in DC, maintain perspective. Your portfolio and your finances are likely to weather this storm – even if the current crop of politicians doesn’t.