We’re heading into a very important season!
For the markets… your retirement… and the future of our country.
This week marks the end of the third quarter and the beginning of the final month of campaigning ahead of the presidential election.
From this point, the political news will come fast and furiously.
And it’s going to take a lot more effort to separate fact from fiction, rhetoric from true intention, and to evaluate how different political stances will affect your life and retirement.
With so much at stake, I want to take extra time this week to discuss the upcoming election and how to protect (and even improve) your retirement plan through this process.
So for the next few days, we’re going to be zeroing in on the election… on the risks you need to be aware of… and the opportunities that this election will set up for your life and your finances.
Let’s get started!
An Orderly Transfer of Power Is Nothing to Fear
To hear the presidential candidates talk, you’d think that either one has the potential to change everything about the country.
Just like the media can sensationalize issues to grab your attention and dial up fear, the rhetoric in Washington can border on hyperbole.
But despite all the important issues up for debate, it’s important to remember that this country has been holding elections for centuries.
And we’ve managed to navigate through changing circumstances and volatile periods in the financial markets and the economy.
I love the way our government has checks and balances in place.
The legislative branch is tasked with making new laws. And since Congress is divided between the House of Representatives and the Senate, each composed of members representing all areas of the country, these laws are supposed to be good for the entire nation.
The executive branch is responsible for enforcing these laws and managing the state of the country.
And the judicial branch interprets laws and determines whether new laws are constitutional.
The beauty of this three-tiered system is that it takes a considerable amount of thought and effort to change the way we live.
And while good important changes should come as our country matures, those changes shouldn’t (and can’t) be made hastily or without due process.
That helps me feel more confident that despite the importance of this year’s election, we’re unlikely to see a sweeping change for our markets, in the economy or to our day-to-day life.
So don’t let the politicians or the media frighten you when it comes to the way our lives will look after the election and January inauguration of newly elected officials.
What Won’t Change After the Election
As investors, it’s extremely important to be aware of potential changes in different areas of the market.
That way we can adjust where our investments are so we can take advantage of these changes.
And of course, we also want to be able to see risky situations evolving to manage our risk and avoid giving back gains if certain investments trade lower.
It’s easy to think that major changes will happen if there’s a power shift in Washington. But the truth is, many areas of the market won’t experience change regardless of who wins in November.
So let’s take a quick look at a few universal themes that will continue in just about any political environment.
These are areas we should see holding strong well after the election in November.
Universal theme #1: Low Interest Rates — Interest rates will remain low for a long time thanks to the pressure the coronavirus crisis has put on the economy and the Fed’s commitment to helping support the recovery.
This commitment won’t change regardless of who wins the White House or which party controls Congress.
With this in mind, we can continue to invest confidently in the areas of the market that benefit directly from low interest rates, like the housing market, precious metals and blue-chip dividend stocks.
Universal theme #2: Technology Acceleration — The last couple of years have featured some incredible tech advancements, including cars that can drive themselves, the rollout of global 5G networks, artificial intelligence applications and much more.
The coronavirus crisis has only served to accelerate much of this advancement as more people work from home, more companies are making their data available on the cloud, and tech companies are accelerating the development of new solutions for customers.
This is a great trend for investors because there are so many companies growing profits from new and exciting technology. And regardless of who is elected in November, tech momentum will still be a high priority for my team as we uncover new opportunities to grow your wealth.
Universal theme #3: The Search for Safe Income — Another 10,000 people turn 65 years old each day in the United States. And tens of thousands of people retire every single week.
One thing that every retiree needs is income.
Income can come from many different sources. And I strongly encourage retirees to set up multiple streams of income to make sure their overall financial picture is secure.
No matter who sits in the Oval Office next year, these retirees will still need income. And this is going to drive demand for stocks that pay reliable dividends.
I expect this theme to drive stock prices for these dividend stocks higher.
Meanwhile, shareholder pressure on management to pay more of their earnings out to investors will keep those dividend payments growing.
As you can see, there are a lot of things that we can expect to remain the same during this election season.
Now, let’s take a look at some of the things that could change at the end of this year and talk about how that may affect your retirement.
What Could Change This Election Season
Perhaps the biggest thing that could shift if there’s a change in political power this year is the corporate tax rate.
You might remember that one of the first major changes Trump made was to lower the tax rate for corporations.
This naturally increased corporate profits, because companies were able to keep more of their earnings. And this sent shares of many companies’ stock higher, helping to boost returns for investors.
The prospect of a higher corporate tax rate, something many Democrats would support, could reverse some of these changes on Wall Street.
You and I can debate whether higher tax rates are necessary and what the government should do with the tax revenues.
But it’s pretty clear that a higher tax rate would add pressure to both the market and economy. It would also pose a risk to your retirement investments.
My team and I are spending time this month determining which areas of the market are most vulnerable to higher tax rates and will sound the alarm if the risk picks up.
The second area of change we might see is an increase in personal taxes for Americans with higher income. In addition to higher income tax rates for corporations, Democrats are also looking at the possibility of a wealth tax.
I’ve said before that I don’t want to spend much time with political debates here at Rich Retirement Letter. I’d rather spend my time helping you figure out successful retirement strategies instead of debating politics.
But since tax rates apply directly to your retirement wealth, I need to warn you that if tax rates move sharply higher for the wealthy, it could wind up backfiring for the overall economy.
Remember, wealthy Americans spend their wealth in our economy. And many also start their own businesses and grow them by adding new employees.
So if the government becomes too aggressive on taxing the wealthy, these new jobs and the spending that helps support the overall economy could suffer.
It’s a risk to the economy and specifically to some of the most important growth areas in play right now. We’ll be talking more about this in our “election proof your retirement” series throughout the week.
The final area that would likely change if the balance of power shifts in Washington is the overall business regulation climate.
President Trump has been well known for reducing regulations for business in many different areas of the economy.
This is a bit of a touchy issue because in some cases deregulation has led to tremendous job growth and new opportunities for families across America.
But at the same time, loosening regulations in areas like environmental rules have the potential to cause damage in ways that we may not truly understand yet.
Simply looking at these regulation issues from the perspective of your retirement, you should be aware of risks to certain areas such as energy companies, big social media stocks and large financial firms.
Initially, any new regulatory restrictions could pressure stocks in these categories and lead to losses. So we’ll be keeping a close eye on investments in these sectors.
But once regulations are known and companies have a chance to adjust, we could see a much more stable business environment.
So as we head into this important season for our country, be aware that certain trends will continue no matter what happens. And know that there are a few key areas that we’ll need to watch very closely.
We’ll be diving into more detail on all of these situations throughout the week.