A few weeks ago, I wrote about the fiscal cliff and shared the small steps I was taking to prepare for it. Now that the election is over and we know we haven’t changed our situation much, some of the uncertainty is off the table – but what should you do now?
Of course, no one can read the future – especially not me, but we can take various scenarios into account and consider how they fit into our personal situation.
Disclaimer: I am not an accountant, financial advisor, economist or any other type of finance professional. Seek professional assistance for your situation. My speculations here are just that and even if they come true, the results on your situation will differ from results on another’s.
Prepare for some volatility.
Because the rest of the world is still struggling with recession and how to deal with it, and because the US is still evenly divided politically at the federal level, I believe there will be volatility in the days ahead while the senate, congress and the executive branch try to work things out.
We already saw the sharpest drop in the market since last year on 11/7/12 and I believe we will see similar peaks and troughs in the upcoming months.
If you are a trader, and I’m not, you might look at taking some short term positions here and there as situations warrant.
Prepare for higher taxes.
No offense to those of you who are democrats, but chances are, since democrats control the senate and the Presidency, taxes will rise for us all and significantly for those of us who do well in life.
Consult your accountant and adviser to find ways to shield income from taxes or defer taxes for a later date.
If you have stocks you need to sell, take your gains this year, but ask your accountant if you should postpone your losses for 2013 tax reporting.
Consider tax free investments, such as municipal bonds for your state. Do the math to see if they are worth their current high cost in your own tax situation.
Remove unneeded assets from your estate.
There is little doubt in my mind that estate taxes will rise to painful levels. Estate taxes can force your heirs to take a double tax hit when you die if most of your assets are in your retirement plan. They may be forced to drawn out assets from the plan (which will incur an income tax on them) to pay the estate tax on your estate.
If you plan to bequeath assets to your heirs, and are comfortable that you will have enough for your own lifetimes, the next two months are possibly the best ones to pass along that money. For these two months, you can pass along five million dollars without paying estate taxes on it.
If you don’t already, you might consider beginning to use each years annual gift tax exclusion amount to pass money and assets tax free to your heirs each year. You can each give up to $13,000 to as many people as you want this year. That amount may change in future years. In fact Forbes is already saying the IRS has increased it to $14,000 for 2013. You don’t have to give up to the limit, you can give whatever amounts you can spare.
Start drafting your buy list.
I have plans to buy additional stocks within my IRA over the next few months. I think the buying opportunities will be good (read that, the stock market will be down). I also believe that once we come out of recession completely, the market could begin a rather lengthy march up. American businesses have a lot of money squirreled away to invest, as do individual investors. A large unemployed section of the population has been working towards self-employment, which may cause an upsurge in new business starts. Those things make me think long term market gains will be very achievable.
Don’t wait for absolute lows to buy.
One of the mistakes I often make is waiting too long to buy or sell – because I think the stock will go even higher or drop even lower.
Pick the price you want to pay and put in a limit order so you can automate your selected buys and sells.
How will the election results affect your finances? Do you have a plan in place?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.