I believe I wrote about this a number of months ago as the election season was starting to ramp up, but I feel the need to mention it again: Don’t let politics drive your portfolio decisions. In the weeks leading up to the election, it can be easy to get caught up in the theories and predictions about what might happen if a particular candidate wins or a certain party gains power. Some will take those predictions and make portfolio decisions in the hopes of getting ahead of the curve regarding how the markets might react to certain administrations. First off, it is incredibly difficult to predict how the markets will react to elections. What economic pundits predicted at the start of the past two administrations did not come to pass with the markets performing much stronger than expected. Rather, you should make your portfolio as you normally would and ignore the election when doing so. Don’t give you portfolio any special treatment between now and Nov. 3. That can be hard to do, especially with the news cycle (and social media and conversations with friends) being filled with election talk, it won’t be easy. However, trust me, it will be worth it to keep your portfolio on the same road it’s be going on.
A few weeks ago, I wrote about whether the pending impeachment inquiry would–or could–impact the markets. While I do tend to stay away from talking about things like the Fed or politics, I may make some exceptions over the next year or so, especially as we move towards next year’s elections. As you may well know, the Fed lowered interest rates again last week, which was the third time they’ve done so since July. This move will impact the markets, but by the time you figure out what that impact will be, the markets will already have reacted and you’ll be well behind that. Instead, don’t get too worried about Fed policies and decisions and focus on making decisions that work for you. That means focusing on your own risk appetite and investing companies that you truly believe will help you meet your goals. The same can be said for following politics, especially in an election year. Candidates from both parties will say a lot of things regarding economic policies and plans–some of which may impact the markets–but you shouldn’t let that sway your retirement plans here and now. Yes, you can pay attention to what they are saying, but you shouldn’t use that information to make investment or retirement plan decisions. With all that said, I am encouraging you to be informed, but to also be aware that what you hear doesn’t need to be acted upon.
I don’t like to talk about politics in this blog as it really doesn’t have any impact on retirement or building up a nest egg. However, given the impeachment inquiries going on at the moment and the brawling that is just beginning regarding them, it may be wise to at least discuss whether such proceedings can have an effect on markets. While there is very little data on such matters, the what little info there is doesn’t show that the markets are swayed by partisan happenings on Capitol Hill. For example, the stock market continued to skyrocket during the Clinton impeachment proceedings–driven largely by the dot com bubble. In 1974, however, the stock market did take a small dip right after Nixon resigned, but rebounded in 1975. Therefore, regardless of your political leanings, you probably don’t have to worry about an impeachment ruining your portfolio. That doesn’t mean though, that you shouldn’t keep abreast of current affairs. Also, this is a reminder to keep politics out of your investing decisions when it comes to your portfolio. While some politicians may claim to have the ability to impact the markets, there doesn’t mean that the markets will react as they claim. If anything, you should pay attention to foreign policy moves and economic decisions (i.e. decisions regarding trade pacts, the federal reserve, etc.), which often do impact markets and can have a wide-ranging affect on your investments and portfolio. So, in short, don’t let the impeachment proceedings impact your retirement planning or investment strategy (I don’t think it would anyways).
Over the past few months, I’ve occasionally written about the SECURE Act. The legislation, formally known as Setting Every Community Up for Retirement Enhancement (SECURE), could have some big impacts on retirement saving for a wide swath of Americans. These changes include framework that will allow small business to band together to offer retirement benefits and will remove the maximum age for IRA contributions. Yesterday, the legislation passed the House by overwhelming numbers–a rare bipartisan showing of support these days. It will next move on to the Senate. The Senate meanwhile, is voting on it’s own legislation to revamp the retirement savings game. The Senate legislation is very similar to House bill and appears to be garnering the same bipartisan support. Whichever legislation gets signed into law will have a big impact on retirement saving by offering more Americans a chance to save for retirement as well as providing a chance for those already saving to save for a longer period of time. What’s not to like about that? Furthermore, with all the political fighting going on in government these days, it’s good to see that both sides can at least work together on some issues, such as retirement saving. If you are unfamiliar with this legislation, I encourage you to look it up and read up on it.
With all the other political events going on, it’s no surprise that some legislation that could greatly change
It may not be evident, but the gaps between the classes in American society have widened over the past decade. The rich have gotten richer, while the middle class and lower classes have struggled to improve their lots. Meanwhile, costs of living have gone up, and along with that, the amount needed to live a comfortable life in retirement. On top of all this, the Baby Boomer generation–one of the largest segments of our country–has aged and started to retire, placing a strain on the resources that once were considered hallmarks of retirement. Things such as Social Security and pensions are not longer able to fully fund a post-career life. Therefore, it’s no surprise that politicians–from state legislators to members of Congress–have turned and eye towards retirement saving. They’ve been quick to act by working on or passing legislation that makes it easier for small business to provide retirement plans to employees and may even make it a requirement for employers in the future. Yes, there is Congressional legislation being discussed that could require employers with more than 10 employees to offer retirements savings options. This could be big news for people working for small or medium sized business or for employers who are too cheap to offer retirement benefits. The interesting thing about these legislative efforts is that they seem to garner bipartisan support, which is a rarity these days. It doesn’t matter where you stand politically, but any legislation that closes the retirement savings gap is a good thing. If you are a young worker (i.e. just starting out in a career), you may want to keep an eye on this legislation as it could mean less stress about retirement when it comes to where you work. If you are an employer, you may want to track how this may impact your business.
Over the next 365 days, policymakers–at both the state and federal levels–have the potential to shape retirement for many for decades to come. Some such policy opportunities may be straightforward in impact while others may be more subtle and long-term. For example, how politicians and regulators go about handling any current economic issues could have affects on how people save currently as well as what future retirement costs may be. Another example might be whether a more liberal-leaning House of Representatives combined with similarly-situated state legislatures may turn their sights on programs such as Social Security and Medicare and look to shore up such programs so that they can continue to serve current and future generations. On the flip side, other legislatures with more conservative leanings may seek to cut into such programs, which may lead to higher future retirement costs and expenses. However, one area that there seems to be bipartisanship is expanding opportunities for American workers to save for retirement through the use of employer retirement accounts. Much of these efforts have focused on opening doors for small businesses to offer retirement savings accounts to employees that were in the past considered to costly for such employers. These are just a few of the ways that politicians and policymakers could impact retirement for you and those of younger generations. This post is also intended to encourage you to remain knowledgeable as to what is happening in both state and national legislatures and to understand how policies may impact you so that you can make the best decisions regarding your finances and retirement plans.