The Unknowns of 2018: Are You Prepared?

Deborah Williams, CFP®

The future is full of unknowns, wouldn’t you agree? Just think back to the beginning of 2017, had you ever even heard of cryptocurrency? Probably not, and now almost everyone has heard of a Bitcoin. Every day, the Federal Reserve, Congress, and the President are making decisions that can impact our overall economy, the markets, and our financial situations. Just a few months ago, we didn’t know what the new tax law was going to look like, now we do. While we can’t always see what’s on the horizon (which can be either invigorating or scary depending on your outlook) we can all become better prepared to adapt regardless. Here is a look at some of the financial unknowns we face in 2018, some may impact you directly, some may not, and what we can do to prepare better.

1.Bull Market Ending
Will the longest running bull market in U.S. history come to an end in 2018? None of us knows this answer. It is a HUGE unknown. What we know for sure is that it WILL one day come to an end and knowing this you must ask yourself, “How will I fare if my portfolio drops 15% or more?” If you are unable to answer this question, it’s imperative to have your portfolio analyzed against various what-if scenarios.

Clients who are taking distributions from their retirement plans during a down market will be more susceptible to sequence of returns risk if we do experience that scenario. Diversification can help your portfolio weather the storm.

The time to make adjustments is not then; it’s now. We offer a free online tool that’s accessible on our website, and also below, that captures your risk tolerance and helps you to see if your portfolio really fits you.

2.Rising Interest Rates
The trend of rising interest rates is expected to continue; however, it is unknown how quickly and for how long they will increase. Interest rates and the price of fixed-income securities have an inverse relationship, meaning when rates rise, prices fall.

There are many different types of fixed-income securities with some being more sensitive to rising interest rates than others. If your portfolio is moderately to heavily weighted in fixed-income assets, it’s essential to determine your interest rate sensitivity. You don’t want to be surprised by a drop in the value of your portfolio when all seems okay with the markets. There are many more dynamics to your portfolio that you need to consider.

3.Health-Related Costs
A study conducted by Harvard University showed that medical expenses account for approximately 62% of personal bankruptcies in the US.(1) Health care reform, the insurance industry’s response, and your health are all unknowns. Are you prepared to pay more each month for health care? Do you have adequate disability insurance or will your long term plans be impacted by a major illness or injury?

With a Health Savings Account (HSA) you can build up a reserve of non-taxable assets to utilize for medical expenses and the contributions you make each year are tax deductible. If you are a retiree, long-term care insurance may also be something to consider. There are many different products on the market now, and we can help you review your options and provide a no-obligation quote.

We’ve enjoyed lower than average inflation rates the past several years, which is below the long-term average of around 3%, as provided by the Consumer Price Index. However, as employment and wages increase while taxes decrease a result can be the rise in inflation, which means the cost of goods increases. While this is usually favorable for the stock market, it can upset your budget and require increased liquidity from your investment portfolio.

The higher inflation runs, the quicker your portfolio becomes depleted. Here is an example, if inflation runs at 3%, the purchasing power of a sum of money is cut in half in 23 years. If inflation increases to 4%, the same amount of money is cut in half in 18 years. How long before your portfolio is cut in ½? If you don’t know, we can help you get the answer.

5.Personal Unknowns
Global and national unknowns will occur this year, but so will some personal ones too. Just consider all the personal changes you’ve experienced over the years and their impact on your financial world. Changes have happened to your relationships, family dynamics, health, careers, income, etc. Some changes come gradually, others are unexpected and all at once. Financial planning can help you anticipate how some of these changes could potentially impact your overall financial situation and identify ways to minimize potential losses and maximize potential opportunities for each.

Regardless of the unknowns ahead, I’m optimistic that our nation will continue to prosper, and I wish the same for you too. If you’d like help to become better prepared for the unknowns ahead, please give our team a call. No two people are alike, and we enjoy getting to know each of our clients one-on-one to help them make the best possible decisions to prepare for many of tomorrow’s unknowns.

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1.Tamkins, Theresa. “Medical bills prompt more than 60 percent of U.S. bankruptcies”, Money & Main St., 05 June 2009

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Stock investing involves risk including loss of principal.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The economic forecasts set forth in this post may not develop as predicted and there can be no guarantee that strategies promoted will be successful.