With the election over, you may be concerned about post-election volatility as we enter 2021. Regardless of politics, short-term stock market results can vary depending on factors, including gridlock in the House and Senate and a newly elected future President Biden, who will take office in January 2021.
Some stock market analysts view a Democratic President and a Republican-controlled U.S. Senate as the ‘best of both worlds’ when it comes to stock market performance:
- The easing of trade wars.
- Increasing global trade of U.S. products.
- Pro-business policies.
- Corporate taxes and capital gains taxes remain at current tax rates.
But it remains unknown how the two sides will work together through COVID-19 and Biden’s proposed policy changes in early 2021.
What else may continue to impact post-election volatility?
Earlier in 2020, the COVID-19 pandemic created volatility in the stock market. Even today, it is uncertain how long the pandemic will last and how quickly we will have vaccines available. However, the stock market responds positively to the news that a vaccine will be available to the public in 2021.
Investors who are nearing or in retirement may have portfolios comprised primarily of securities that are not immune to stock market swings. During periods of volatility and uncertainty, investors often look for safety by purchasing U.S. Treasury bonds. However, bond returns can be diminishing when interest rates are low, not protecting portfolio needs against risks during retirement.
In any market, investors must always consider risks that have the potential to sideline their financial future:
- Inflation Risk- Investments not optimally positioned to address the rising costs of goods and services will deplete a portfolio.
- Taxes Risk- Increased taxes erode the investment capital; the investment type and timing are critical.
- Longevity Risk- Investment capital that is not enough for supporting longer lives and long-term care needs.
- Survivorship Risk- Unexpected loss of a life-partner leading to lower investment capital.
- Market Risk- Loss of principal value can decrease investment capital.
One solution to addressing risk to a portfolio is increasing the allocation of principal-protected products as another asset class. The benefits of fixed-indexed annuity products can address all five significant dangers to one’s financial future:
- Inflation Risk- Asset allocation strategies address inflation.
- Taxes Risk- Leveraging tax-free investment strategies increases investment capital.
- Longevity Risk- Utilizing “income for life” features address longevity risk and long-term care risk.
- Survivorship Risk- “Death Benefits” provide tax-advantaged mitigant against untimely death.
- Market Risk- Principal protection provides a buffer against stock market fluctuations.
The impact of post-election volatility, future inflation, and tax increases due to COVID-19 will continue over the next months and years. For this reason, you must prepare for your financial future during this volatile market environment. If you are nearing or in retirement, meet with your financial professional now to plan a strategy to deal with potential market volatility.
Disclosure: This information is provided as general information and is not intended to be specific financial guidance or tax advice. The source used to prepare this material is believed to be true, accurate, and reliable, but is not guaranteed. An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax-qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information.
In addition, Carrio Financial Group specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!
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