With the U.S. presidential election about 20 days away, investors need to remember that anything can happen in those three weeks. Who leads the polls today can change several times between now and the election. That is to say: It is nearly impossible to predict the outcome, much less start making changes to your financial plan and investments in anticipation of an administration change. There will be plenty of time after the election to make any necessary financial moves.
However, it is good practice to be aware of what changes may come down the line and to know what strategies may work, should conditions change. As we mentioned a few weeks ago, for a president to make changes to tax laws, legislation would have to pass both the Senate and the House of Representatives. Should either house of congress be controlled by a different party than the president, changes are likely to take longer—if an agreement can be reached at all.
If you are expecting an increase in your ordinary income tax rates, you may consider selling stock positions that are trading below their purchase price to realize the loss. Losses can be used to offset capital gains and up to $3,000 in ordinary income. Losses can also be carried forward to future years. Your best course of action today is to rebalance your portfolio to ensure it is in line with your recommended allocations.
If you believe that you may be affected by a cap on itemized deductions, you may consider pulling income into 2020 to take advantage of a lower ordinary income tax rates while at the same time, pulling deductions into the current year when you know the deduction is available.
If you think there is a chance that there will be a change in how pre-tax retirement contributions can be deducted, you may consider Roth conversions that should provide you with tax-free income in retirement. Also, understand that if these changes come to fruition, your financial adviser is already looking at how different scenarios will affect you. You don’t have to navigate substantial changes alone. Financial advisers and CPAs help preserve your money and control your taxes for a living. Having experts in your corner will benefit you in the long run.
You should also remember that any changes you need to make to your plan or portfolio should be only for the money you need within the next 10 years. If you are following the Henssler Ten Year Rule, money you need within the next 10 years is placed in fixed-income investments to protect the principal from the volatility of the market. The remaining money is invested in the stock market for 10 years or more.
The Ten Year Rule covers not only two business cycles but two and a half presidential administration cycles. Furthermore, if you are concerned about market volatility—now is not the time to turn your portfolio inside out or deviate from the financial plan you have in place. Ideally, you establish your plan based on your spending needs, you implement that plan, and then maintain and stay the course through the election cycles.
If you have questions regarding how some of these financial moves may be useful in your situation, the experts at Henssler Financial will be glad to help: