The 2024 presidential election is one of the most hotly contested and unusual political races in recent memory. A deeply divided nation has watched as one candidate has been the target of more than one assassination attempt, and the other dropped out to be replaced by his vice president. As with any series of turbulent events, stressful election seasons like this one can cause people to fear for the future.
When you feel the future is in doubt, it can be tempting to make financial decisions based on what you fear will happen. Particularly in close elections, as the 2024 race is predicted to be, investors can become extremely nervous about the outcome and the impact it will have on their finances.
If you believe one candidate will harm the economy and also think that candidate is likely to win, it’s hard to resist the urge to protect your finances by divesting yourself of assets you feel will be at risk when the new president takes office in January.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Conversely, if you’re confident your preferred candidate will win and will be a boon to the economy, you’d be tempted to shift your investments toward assets you think are likely to prosper under that candidate’s presidency.
Election-year stock market impacts
Historically, while the stock market often displays some volatility in the months leading up to an election, once that election is in the rearview mirror, market volatility tends to calm. Within a few months of the new president taking office, the market is usually right where it would be expected to land had the election never taken place.
In short, despite common assumptions that they will either rout or boost the markets, elections don’t tend to have much impact, regardless of which party’s candidate wins the Oval Office. This can be unfortunate for those who assume otherwise and make financial decisions based on that assumption.
Prudent financial moves during election season
Whether an election year or otherwise, it’s crucial to have a solid financial plan tailored to your individual situation and risk tolerance. A financial adviser can help you devise a plan designed to grow your money in a balanced portfolio that has appropriate levels of investment risk. If you have such a plan, the prudent move during an election is to stick to that plan.
A properly designed plan is already set up to take advantage of good times and weather bad times. History suggests that making major portfolio changes in response to election uncertainty can cause more harm than good.
Apolitical financial planning
One aspect you could consider, however, is taxation. Regardless of which party wins in November, it’s likely we are currently enjoying the most favorable tax environment we will see for years to come. To fund the government and service existing debts, at some point the country will likely have to increase its income, which means higher tax rates.
The Tax Cuts and Jobs Act set our current tax rates and brackets, but it is due to expire at the end of 2025, barring congressional action — an action that most electoral scenarios deem unlikely at this time. Once it expires, we will return to the higher tax environment the TCJA replaced. This means any action you can take to lower your future tax burden is likely to save you money in the long run.
One common way to accomplish this is to consider converting your tax-deferred retirement accounts to their Roth equivalents. You will pay taxes on them now, at current tax rates, but will not have to pay taxes on withdrawals or gains in the future. Plus, while tax-deferred accounts have required minimum distributions (RMDs) that you must take whether you need the money or not, Roth accounts do not.
Those RMDs are considered income when you take them, and if you have other sources of income in retirement that cannot be paused, such as pensions, Social Security or annuities, they could move you from a lower tax bracket to a higher one.
Roth conversions don’t make sense for everyone, and like investing, the wisdom of converting to Roth accounts depends on your individual circumstances. It’s important to sit down with a financial adviser to devise a financial plan that’s right for you.
Related Content
-
What the Senate's Vote to Repeal CFPB Bank Overdraft Fees Cap Means For YouThe Senate voted to overturn the Consumer Financial Protection Bureau's cap on overdraft fees. Here's what you need to know.
-
Ask the Editor: Four Reader Tax QuestionsAsk the Editor In our new Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions related to filing of tax returns and paying taxes.
-
Retiring With a Pension? Four Things to KnowThe road to a secure retirement is slightly more intricate for people with pensions. Here are four key issues to consider to make the most out of yours.
-
How to Teach Your Kids About the Tax Facts of LifeTaxes are unavoidable, so it's important to teach children what to expect. Also, does your child need to file a tax return for 2024? Find out here.
-
Stock Market Today: It's Going to Stay Choppy for StocksAuto-focus can show us a lot about uncertainty on the ground and in the stock market.
-
What Would $1.46M In Savings Do For Your Retirement Lifestyle?Americans think $1.46 million is the ideal amount of money to have saved for retirement, according to a survey. What would that amount of money mean for your lifestyle in retirement?
-
Revocable Living Trusts: The Good, the Bad and the UglyPeople are conditioned to believe they should avoid probate at all costs, but when compared with living trusts, probate could be a smart choice for some folks.
-
How to Plan for Retirement When Your Child Has Special NeedsWhen your child has special needs, your retirement plan should include a plan for when you'll no longer be able to care for them yourself. A five-step guide.
-
Stock Market Today: Auto Tariffs Send Stocks LowerThe main indexes snapped their win streaks after the White House confirmed President Trump will talk about auto tariffs after the close.
-
Is Your IRA Protected in Bankruptcy?Can creditors take some or part of your IRA funds if you file for bankruptcy? Learn more about the federal protections that exist and to what extent they protect your IRAs.
