Q&A: How Financial Advisors Can Prepare for 2021

While 2020 was hardly anyone’s idea of a banner year, the stock market soared to all-time highs. That might seem like cause for celebration.

But many investors feel like they’re riding on hot air, waiting for the temperature to drop and this merry balloon to fall. Such fears seem warranted given the sudden market declines earlier this year.

For financial advisors, this poses a unique challenge: How do you reassure investors today when tomorrow is anything but certain?

We spoke with Chad Staskal, managing partner and CEO of Eagle Wealth Management, on how advisors and investors can prepare for a (hopefully) less nerve-wracking year ahead. Here are edited excerpts from that interview.

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What strategies can help advisors guide their clients through challenging times, including this year and the one ahead?

Most of us are looking forward to 2021 and getting back to “normal,” whatever that means to each of us. It may take a while to get there, but it is coming.

As a holistic financial planner, my focus is to help clients find ways to maximize their confidence in their financial plan and reach their goals. The more confidence investors have in their overall plan, the less likely they are to make poor investment decisions. The key is a comprehensive financial plan that prepares for both good and bad scenarios. Then, when something unexpected happens, there’s a living plan that’s flexible and easily modified.

[SEE: 7 Risk-Management Tips for New Investors.]

I often tell clients that financial planners have great job security since everything we do is based on factors that will change as soon as tomorrow. The only constant is change. It could be a client’s goals, health, job status or family relationships. It could even come in the form of economic, social, environmental, political or “black swan” events like the pandemic. A plan should be able to adapt to the new situation and give clients the confidence to make informed decisions based on facts, not emotions.

For example, we’ve just passed my sixth presidential election as a financial planner. And every time, the same questions and concerns come up no matter which party is in control. Some people have a sense of doom and desire to make changes if the other party wins, but this is rarely justified.

What impact do you think the outcome of the presidential election will have on the financial markets heading into 2021?

Very little — which is usually not the answer my clients expect or want to hear. But, historically, it’s the truth. It’s understandable that politics and elections elicit extreme emotions and a desire to take action. But changing a financial plan or investments based solely on an election is not usually a good decision.

History shows that both gross domestic product and the S&P 500 make gains in the long run, regardless of whether it’s a Republican, Democratic or split government. The S&P 500, for example, shows an average return of 10% since the Great Depression with either Democrats or Republicans in control. With a split government, meaning one party holds a majority in Congress while the opposition party holds the White House, that average rises to only 10.4%. But keep in mind: The stock market doesn’t always go up. Recessions happen and they happen to both sides of the political spectrum. There have been 13 recessions since the Great Depression, and there will likely be a 14th. But after every recession so far, there has also been a rebound to a new all-time high.

Just because the party you support — or don’t support — is now in control of part, or possibly all, of the governmental branches, it’s not a solid indicator of how the financial markets will perform in the next year.

What tax and investment considerations should advisors and investors contemplate prior to year-end?

This is tricky since the balance of power in the Senate won’t be decided until after the Georgia runoff on Jan. 5. Control of the Senate plays a significant factor in President-elect Joe Biden’s tax initiatives. If Republicans maintain the majority, it’s expected they will attempt to block his potential tax changes. If Democrats gain control, it may be a different picture. This leaves investors with a dilemma: Act now and risk paying extra taxes when maybe the tax law won’t change, or wait and risk that taxes could go up.

So, what can you do? Even outside an election year, you should aim to focus on your current situation and current tax law every year, then consider the future. Based on the ballooning national debt, do you believe personal taxes will go up or down in the long run? Personally, I’m expecting tax increases, and I encourage my clients to plan for higher tax brackets in the future. If it doesn’t happen, we can be pleasantly surprised.

What are your predictions for the 2021 financial markets and economy?

This is a difficult question because, as we saw in 2020, financial markets and the economy are not the same thing. In 2020, the economy experienced a worldwide, pandemic-driven recession that led to skyrocketing unemployment and small businesses closing at rates not seen in 90 years. Yet as we close out 2020, most major financial markets are setting record highs. The stock market is not the economy. While many of us feel the effects and emotional distress of what is happening in our economy, we don’t want those emotions to dictate how we invest for our retirement.

Our investment team believes there’s a good chance the economy will rebound significantly in 2021 with the rollout of vaccines and additional global monetary and fiscal stimulus. With continued low interest rates likely for a couple of more years, the U.S. economy should be in line for a very good 2021. That doesn’t mean we’ll get back to pre-pandemic conditions right away, but progress is likely.

There’s still uncertainty for projected 2021 earnings, and many growth stocks are trading at relatively high prices compared to their earnings. There’s likely to be more volatility, which is normal, until we gain clarity on further policy support, election outcomes and progress with the COVID-19 vaccine.

[SEE: 14 Things to Know Before Becoming a Financial Advisor.]

We never make one-year predictions on how the stock market will perform, as there are too many events that can derail the financial markets at any given time, just like the pandemic did. But with continued low interest rates, an accommodating Federal Reserve, the possibility of more global fiscal stimulus, an administration we know wants to spend more on infrastructure and environmental initiatives, and the likelihood of better global communications and trade, the stock market will be a better place to invest than fixed income or cash, as long as you can stay invested and tolerate the volatility over the next five to 10 years.

How should investors be structuring their portfolios given what you’ve shared?

I would answer this question the same way today, under the current financial circumstances, as I would tomorrow, when many of those circumstances may be different. Take the time to understand your entire financial plan. Every investment has pros and cons, specific tax consequences and risk associated with it. Each portfolio should be individualized based on personal goals, income needs, risk tolerance, tax situation and economic conditions.

Most families spend more time planning a two-week vacation than they do their financial future. I encourage everyone to make time for their finances. If you’re new to investing and looking for resources, an easy place to start is with research on the internet. Use well-known, trusted sources, of course. Your local college is often a reliable source to find retirement or investment classes, virtually or in-person.

If you’re nearing retirement or have more complex finances, consider interviewing and working with a certified financial planner who can help align your portfolio with your goals and financial plan. Make sure to find a planner who is a fiduciary and passionate about your success. It may be one of your best investments of time and money ever.

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Q&A: How Financial Advisors Can Prepare for 2021 originally appeared on usnews.com

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