Last year was a good one for U.S. investors, and many financial experts are cautiously optimistic for 2018.
However, many factors – including tax reform, interest rates and geopolitics – could affect your finances in the year ahead.
Perhaps the most significant change is the Tax Cuts and Jobs Act of 2017 recently enacted and expected to have a varying degree of impact on taxpayers. It’s why experts suggest paying close attention to how the law will affect you.
“We still expect the stock market to trend higher as earnings growth expectations remain positive and the consumer remains in relatively good shape,” said Timothy Roof, vice president at Valley National Financial Advisors in Hanover Township, Northampton County. “However, we expect single-digit returns from the S&P 500.”
Several signs of a strengthening economy in 2017 included gross domestic product growth, increased personal consumption expenditures, rising oil prices, lower unemployment rate and improved corporate earnings, according to Becky Schweitzer, Financial Associate with Thrivent Financial in West Lawn.
“Most major indicators are showing positive returns [in 2017], and stock indices, in general, have experienced double-digit growth,” said Kevin Karpuk, chief information officer with Cornerstone Advisors Asset Management in Bethlehem.
“Since the end of the global financial crisis in 2008-2009, investing has been easy,” he said. “Whatever you bought likely has gone up in value. Going forward, it may not be so easy. Use this time, at all-time market highs, to really think about where you are and where you want to go with your finances.”
TACKLE CREDIT CARD DEBT
Indeed, the new year is the perfect time to conduct a financial review – expenses, savings goals, retirement contributions and insurance – and determine where you are and where you want to go financially.
Credit card debt can keep one from achieving long-term goals, so if you have a lot of credit card debt, make the systematic reduction of that debt a high priority, said Michael Joyce, president of JoycePayne Partners in Bethlehem and Richmond, Va.
“If a purchase can’t be paid off in a month or two, that purchase should probably be deferred,” Joyce said.
Roof recommended an emergency cash reserve of three to six months of ordinary living expenses.
If not, start to set aside a monthly amount to build this reserve, he said.
It’s also never too early to start thinking about retirement. Joyce suggested reviewing your qualified retirement savings, and – assuming you haven’t already maxed them out – consider increasing your contribution by 1 percent.
“If that doesn’t hurt, they should keep increasing the percentage of their pay going into their plan by 1 percent until it starts to hurt,” he said.
It’s also important to review your investment allocation and make sure it is aligned with your risk tolerance and investment goals. Roof said.
“If you haven’t rebalanced in a few years, your stock allocation may be overweight, and you are taking more risk in your portfolio than you may be able to stomach,” he said. “Use this as an opportunity to align your portfolio with your targets.”
Roof said it’s also important to protect yourself and your family by reviewing your risk protection such as life and disability insurance.
And, of course, people should review the tax withholdings from their paycheck to ensure that a proper amount of taxes is being withheld – particularly with the new tax law.