Impact on Investments Over Next Five Years
A common question asked in job interviews is “Where do you see yourself in five years?”. Individuals may also ask that question of themselves or their significant other. Pondering where one might be in five years is a common enough occurrence, but seldom do people think about what events or circumstances could impact what that outcome looks like in five years. The same is true about financial lives, most people have some type of goal in mind, or timeline as a component of their financial planning, but seldom do they think about what could impact their financial wellness over the next five years. Thinking about the various things that have the potential to impact financial wellness allows investors the opportunity to address their concerns and take precautionary measures, if warranted.
The world of possibilities of what could impact financial wellness is quite broad, although less than a dozen issues are of concern to at least half of wealthy investors, according to recent research from Spectrem Group. When investors were asked about what could have at least some impact on financial wellness the answers varied.
The most commonly identified issue that investors believe will have at least some impact on their financial wellness is inflation. Inflation has become increasingly concerning for investors and is often a topic on the news lately. The impact to financial wellness is understandable, as buying power is significantly reduced, along with many other financial complications. This issue is identified as having at least some impact on financial wellness in the next five years by nearly 80 percent of wealthy investors.
A downturn in the stock market is the next most common situation that would have an impact on financial wellness over the next five years. That would have an obvious impact to portfolio values and expected investment returns. That could significantly impact a financial plan, which in turn impacts financial wellness. Along those same lines is a nationwide recession or economic downturn. This has the potential to not only impact investment returns but also employment security. These potential issues are identified by 78 percent and 76 percent, respectively, of investors as having an impact on their financial wellness over the next five years.
Taxes also have an impact on financial wellness, with federal tax increases being the most likely to be a concern with 69 percent of wealthy investors indicating federal tax increases will have at least some impact on financial wellness in the next five years. State tax increases are concerning to 62 percent of investors, while increases to capital gains taxes 60 percent of investors believe will have at least some impact on financial wellness. Increases in taxes results in lower income that is available to meet the various savings and investing objectives, thus impacting financial wellness.
Health issues, both a long-term medical issue and a catastrophic health issue are issues that two-thirds of wealthy investors feel will have at least some impact on their financial wellness over the next five years. No one plans when they will have long-term or catastrophic medical issues, so the best investors can do is to discuss with their financial advisor how to prepare for the possibility of something like that happening, so it does not impact financial wellness.
Social Security is a component of many investors’ retirement plan, so it is no surprise that 60 percent of investors would have an impact to their financial wellness if there were to be changes to Social Security. This issue dovetails into another topic, which would be the possibility of running out of money in retirement, an issue that half of wealthy investors feel will have an impact on their financial wellness over the next five years.
Investor’s feelings of financial wellness can be impacted from multiple directions, so it is important that investors speak with their financial advisor any topics they feel have the potential to impact their financial wellness. These discussions can help an investor to feel more prepared for these possible circumstances, as well as take action when necessary to mitigate the impact of these issues.