2016 is here and with it comes many things: a presidential election cycle, a small rise in interest rates thanks to the Federal Reserve, a possible end to the long positive run of the stock market and likely some personal changes in your life, too.
With all this change going on, how can people stay on top of their finances without spending hours studying the news and micromanaging things? Here are four smart strategies for handling the uncertainties of the year ahead.
Don’t make a rash move because of fear of the stock market, especially in your retirement account. Many articles have been written about how the positive upswing in the stock market is due to hit a downturn at some point, and quite a few prognosticators have pegged 2016 as that year. It’s tempting to believe those arguments, and they may in fact be right, but there’s one catch, and it’s the one fundamental thing that everyone should keep in mind about investing.
Past performance does not indicate future returns.
In short, no one knows for sure where the stock market is headed (aside from maybe a few billionaire hedge fund managers or institutional investors who have enough leverage to actually move the entire stock market a little, but they’re not talking). Making a move this year out of fear of what might happen, especially in a long-term investment like a retirement account, is a bad choice. The truth is that the stock market is bound to fluctuate over time and, yes, some years won’t be all that good. However, trying to time when the market will be high or low is a fool’s game, because virtually no one can guess the peaks or the bottoms correctly.
Instead, stick with your game plan. If you’re heavily invested in stocks because you’re far from retirement, stay there.
The presidential election won’t change your money situation that much, so sit tight. Maybe you’re afraid of the dollar being abandoned on the world stage because of a certain candidate being elected, or perhaps you fear higher taxes or anticipate lower taxes. The mere election of a particular presidential candidate this year might seem like it indicates great change, but the truth is that any change a candidate might cause will take several years to implement by the time the changes push through Congress, get signed into law and the effects begin to be felt. We also can’t necessarily see the long-term ramifications of what a president might be able to do.
So sit tight with your money, even if a candidate who worries you gets elected to the highest office in the land. You may find that the apocalyptic fears you have are largely unfounded.
Tax penalties for the Affordable Care Act are going up sharply, so sign up for health insurance if you haven’t already. One of the major provisions of the Affordable Care Act is a tax penalty for those who do not carry health insurance. In the first few years of the rollout, the penalty was pretty small: $95 per adult (or 1 percent of household income) in 2014 and $325 per adult (or 2 percent of household income) in 2015. This year? It’s $695 per adult (or 2.5 percent of household income). There is a cap for a family, but that’s $2,085 this year, up from $975 a year ago.
In other words, if you were willing to pay the penalty to avoid paying for health insurance in previous years, the amounts have gone up enough this time that you may want to reconsider that strategy. Nearly $700 for a single adult is a stiff penalty, one that would cover most of the cost of an entry-level health insurance policy for a healthy adult. Check out your state’s exchange, and sign up by Jan. 31, so that you’re not dinged with a big penalty.
The myRA is a new retirement savings option for people getting started and who are risk averse. In November 2015, the government quietly rolled out a new retirement plan run by the Treasury Department. It’s an interesting variant on a Roth IRA for people who don’t have a lot to invest and are afraid of losing that little amount in the stock market.
The myRA functions like a Roth IRA, meaning that you put money straight from checking or savings into the account, and you won’t have to pay taxes on the money earned in that account provided you leave it alone and don’t withdraw it until age 59 ½. There are no minimum contributions, which is often a requirement for other Roth IRA plans. The money is put into a savings bond, which is a safe guaranteed account — you will never lose money in here and will always earn a return. However, the rate of return is fairly small — about 2.31 percent in 2014, which is higher than a savings account but far lower than what the stock market averages. Once your balance reaches $15,000 in that account, you can then convert it into a normal Roth IRA with all the investment options that come with it.
This is a great option for those who want to get started on retirement savings but can’t afford to contribute much and are wary of risk or of a stock market fall in the near future. While the returns aren’t great, a myRA doesn’t have a minimum contribution level, and the money in the account is about as secure as can be.
Here’s hoping that 2016 brings you all the money success that you dream of!
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4 Simple and Smart Money Strategies for 2016 originally appeared on usnews.com
