One more week until Election Day. After all we have been through this year, some of us are feeling kind of tired. What should we be thinking about? Are there things we ought to be considering related to the potential outcomes (e.g., changes in tax policy)?
What are we thinking about at this moment of maximum uncertainty?
We have always believed that our focus should be on the things we can control. A prime example is that we know we can’t control the markets, so we don’t obsess about every fluctuation in the S&P 500, and we don’t try to guess what the next year or two will be like–we accept that we don’t know. We can control what we spend, what we save, how we plan for our financial futures, how we invest. The rules we live by that guide our thoughts and actions as we go forward.
None of us really knows what the outcome of this process is going to be. At this point, we can’t even be confident that we will have a clear outcome by the end of Election Day. It might end up in the courts and take weeks or months. We can’t predict or control any of this. But we do have some choices.
First of all, to some extent we can choose how we react to events and how deeply we allow them to affect us. Setting personal feelings aside for a moment, as people planning for our financial futures, we need to find a way to maintain focus and discipline, regardless of what is happening in the world around us. Easy to say, hard to do, especially when we have the kind of market volatility we’ve seen over the past couple of days. But it is very important.
Secondly, we might want to prepare ourselves mentally and emotionally for a period of difficulty. In our experience, challenging times can cause panic; people are tempted to make hasty decisions, big mistakes. Surprise can make it worse. Contemplating a painful and difficult process and preparing to ride it out might be a good idea right now. If things go well, great! If things do not, we can remind ourselves that we usually survive these things, and after the trouble things may turn out surprisingly well.
So, what can we control? What actions should we contemplate?
Aside from preparing ourselves to handle a difficult time, just in case, we ought to be ready to consider what changes to the tax code we might see depending on the election result. When will they be effective, and how might they affect us? Obviously, there is considerable uncertainty around what would actually be enacted next year, but it may be the case that we need to make decisions quickly if we are to obtain better tax treatment for a variety of things.
We may be looking at higher tax rates on income, the elimination of lower tax rates for capital gains, and other changes related to estate planning, gifting to family, and donating to charity. And it might take effect in 2021. Are there steps you can take before year-end?
In a week, we will know more, and we can share more detail depending on the outcome. Shortly thereafter, it may be time to sit down with your planning and tax professionals to consider your options, given your situation and plans for the future. Don’t wait until late December! If you start planning right away, you may find you have the time to carefully consider alternatives and execute some good decisions.
Meanwhile, let’s all hope for the best and keep our spirits up as best we can. This too shall pass.
Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. The information contained within this letter is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any types of securities. Past performance is not a guarantee of future returns. It should not be assumed that diversification protects a portfolio from loss or that the diversification in a portfolio will produce profitable results. The opinions stated herein are as of the date of this letter and are subject to change. The information contained within this letter is compiled from sources Team Hewins believes to be reliable, but we cannot guarantee accuracy. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas.