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En español | The November election doesn't just mean endless debates and polls. It has implications for the economy and your finances, too.
Typically, an election year means low interest rates and happy days in the stock market. In years when an incumbent president has run for reelection, the stock market has typically returned 10 percent to investors, according to the Stock Trader's Almanac. Policymakers in Washington do what they can to keep the economy chugging along.
But — you knew there was a but, right? — both the current economic expansion and the bull market in stocks are the longest in modern history. And nothing goes up forever. Privately, banks are already taking measures to protect themselves from a recession they expect before the end of the year, says Robert McKinley of research firm CardTrak.com.
And this election year is one of sharp divisions, mercurial candidates and a hair-trigger Wall Street, so anything can happen, perhaps quickly. That can be frightening, but it also offers opportunities for improving your finances while the politicos fight it out. Here are three strong moves to make in 2020, and one that you definitely don't want to make.
3 Do's and a Don't
1. Do stay safe. If you are retired and living on Social Security and your savings and investments, try to keep enough money in cash-like accounts (bank and money market accounts and CDs, for example) to cover, alongside your guaranteed income, one to two years of living expenses. (Even more is better.) That way, even if the value of your 401(k) suddenly plunges, you won't have to sell anything under pressure to pay bills or meet mandatory withdrawal requirements. You won't even have to look at your retirement account on bad days.
2. Do play the rate card. Given current low rates and the chance that lenders will extend less credit in a downturn, this is a good time to upgrade your credit card. Great deals are still out there, but bankers are tamping down some of their top deals, says Gannesh Bharadhwaj of Credit Karma. Your best bet now depends on your credit habits. If you don't carry balances, lock in a new card that has a generous cash rewards program and a sign-up bonus. But if you carry balances, shop for a low-rate card. And if you are carrying a big balance, move it to a 0 percent balance transfer card while that type of offer is still around. Then do all you can to pay it off before the introductory rate expires.
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3. Do rethink your bank. In a low-rate election year, one trend likely to continue is near-zero interest paid on bank savings accounts. That makes 2020 a good year to look for an online-only bank, now offering as much as 2 percent interest on savings. (Find them at Bankrate.com and NerdWallet.com, and, yes, they are FDIC-insured.) It may pay you to consolidate accounts, too, since fees on smaller accounts make it costly to keep little amounts of money all over the place.
Don't invest based on how you think the election will turn out, or how it eventually does. Making political contributions is fine, but don't mess with your retirement portfolio. Don't put extra money in windmill farms or defense contractors because you like a particular candidate. And don't pour extra money into — or pull extra money out of — stocks or bonds or any other type of investment because you fear a particular candidate. Your accounts, broadly diversified going into 2020, should stay that way. Gordon Achtermann, a Fairfax, Virginia, financial adviser, likes to remind clients that on the night Donald Trump was elected, the Dow Jones Industrial Average signaled an impending 900-point drop, but actually rose 257 points the next day. Politics causes big short-term moves in the market, he says, but not a quick, permanent change. Stick with your same old diversified mix of investments and savings, and you'll win in 2020.
Linda Stern has been writing about finances since 1980. She was most recently Wall Street editor at Reuters and has been a contributing editor at Newsweek and Cosmopolitan. She has written several books, including Living on Your Nest Egg. Stern is a wife, mother, grandmother and inveterate checkbook balancer.