Investment, Tax & Charitable Giving in 2018 | Personal Capital
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Personal Capital’s Affluent Investor Outlook 2018

We are amidst one of the longest bull markets in history, which leaves many affluent investors to ask: What comes next?

It looks like even for those who seem to have everything, the future is still uncertain.

What will happen with the market? How can investors protect themselves against the uncertainty ahead? And how will the government, politics, and tax policies impact them?

These are just a few of the questions we asked in a survey we commissioned with ORC International of over 1,000 U.S. affluent adults (those who have total household investable assets of $500,000 or more*) to see how they are thinking about the future.

Some key findings include:

Faith in the Market; Fear in the Portfolio

Nearly half (48%) of survey respondents believe the market will perform better in 2018 than it did in 2017; only 9% think the market will decline in 2018. Millennials seem to be especially optimistic, with 67% predicting 2018 will be an even better year than 2017, versus 53% of Gen X, 32% of Baby Boomers and 32% of Silent.

With so many believing the market will perform well, a surprising number of affluent investors (16%) have most of their net worth invested in cash. Why can this be an issue? Holding cash in a simple savings account could effectively manufacture your own market downturn if inflation rises and interest rates remain low. There are many reasons to keep cash on hand, but data suggests that you can miss out on good investment opportunities without proper diversification. In addition, recency bias makes it easy to forget that markets are cyclical and we will eventually see a downturn. A lack of diversification can also be harmful to your portfolio in this sense as well.

The good news is that mistakes can be fixed. Honesty and acknowledging a pain point can be the first step in fixing a financial problem. Working with a financial advisor may also be a good step to take in the right direction.

The Trump Effect in 2018

Tax reform dominated the headlines in the recent months, and just like other Americans, the affluent are divided over almost everything tax-related. What’s an appropriate tax rate? Are Trump’s policies a net positive for investment portfolios?

Although your tax rate depends on your state and your income, 15% of respondents indicated they think people making more than $1 million should pay higher taxes. There were also geographic differences, with GOP strongholds in the Midwest less likely to favor higher taxes for wealthy individuals compared to the Southern region and the relatively Democratic-friendly regions in the Northeast and West, who favored higher rates for these individuals.

Another matter inside the political realm (but outside taxes) causing dissonance is whether a Democrat or Republican-controlled Congress in 2018 is best for the finances of the mass affluent. Women (57%) were more likely than men (44%) to favor Democrats, and Millennials (56%) and Gen X’ers (58%), Baby Boomers (43%) and the Silent Generation (38%) say a Democrat-controlled Congress would have a positive impact.

Charitable Giving: ‘Tis the Season for Generosity, Especially Among Millennials

As we are amidst the holiday season, which means that many people are thinking about charitable giving. They’re not alone. Nearly everyone we surveyed contributes to a charitable cause. Millennials are especially generous – 47% report they’ve given more than $20,000 in 2017! And this generosity may stand to increase as we continue toward the future greatest wealth transfer in history. Regardless of generation, the mass affluent give to a wide variety of charity causes, such as health, animals, poverty and education-related causes leading the funding charge in 2017.

Our Take

While affluent Americans may look forward to a healthy financial future, they still also have a healthy dose of skepticism and doubt. With the market’s performance trending upwards, we should remind ourselves that what goes up must come down, and it’s critical to be prepared for that eventuality. Speaking to a financial advisor can help you navigate political and economic uncertainties, while still planning for the future.

Read our free affluent American survey to learn more about how the affluent think about the future.

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Michelle Brownstein is the Vice President of the Private Client Group at Personal Capital. She is a Certified Financial Planner with a wide range of experience in investment management.
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Let us know…

This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

Make moves toward your money goals with Personal Capital’s free financial tools.