Barbara Magor Deel is a certified financial planner and a chartered financial consultant with EFS Generation Income Planning in La Vernia. Securities and Advisory Services offered through Cadaret, Grant & Co., Inc., a Registered Investment Advisor and Member FINRA/SIPC. American Investment Planners LLC and Cadaret, Grant & Co., Inc. are separate entities.
As the Fed navigates economic data and their projections for inflation, investors are adjusting their portfolio allocation as well. Following the June meeting, Fed members had forecast they may cut rates once by 25 basis points in 2024. After recent alterations from the August meeting, the Fed cut rates by 50 basis points (half of one percent) and included language in their notes around the strong labor market, and that the risks regarding changes in inflation and employment are close to being equal.
While Real Gross Domestic Product was revised up 1.3 percent for the second quarter of 2024, portfolios with equity exposure have been enjoying the benefits of corporate profits as well. The question for the future will be how much of these profits will be taxed and at what rate. Tax policy in Washington can affect various components in the economy over the longer term. There may be retirement related issues such as Social Security changes, costs of healthcare, besides future taxation policies. Regardless of specifics, elections introduce a lot of uncertainty, at least in the short term. A diversified portfolio for your individual risk tolerance is critical to your long-term success.
Considering the unpredictable nature of election years, it is best to schedule a review with your team of financial advisor and trusted tax advisor. Revisiting your goals and evaluating your portfolio can take the emotional edge off that feeling of uncertainty. Stock market volatility may increase as we get closer to the election and spur irrational decision making. If you’re invested for the longterm, short-term volatility should not derail that vision. Considering the fairly stable equity market of 2024 and a healthy economy, visit your time horizon and the diversity of your investments.
The most effective way to manage risk, whether geopolitical or otherwise, is broad diversification. Maintaining that allocation requires monitoring and possible adjustments as markets adjust. High quality bonds with relatively short maturities help reduce overall volatility as well as they provide stable returns. Spreading investments across different asset classes, sectors and geographies can help mitigate risk and enhance your portfolio’s resilience to the market fluctuations. The strategy of diversification is the process of investments in different securities that have negative correlation, meaning when some assets go in one direction, the other assets behave differently and go in the other direction.
Finally, it is important to remember no matter how diversified your assets are, markets are continuously evolving and reassessing your goals amidst the changing environments should be done on a consistent basis with your team of trusted tax advisor and certified financial planner.
Email barbara@americaninvestmentplanners.com for more questions.
