There’s no shortage of opportunity in the investment world in 2018. With a decade of low interest rates coupled with the passing of a major tax stimulus we may see markets go even higher next year.
More than $1 trillion of cash overseas will be repatriated by S&P 500 companies beginning next year^1. They will be paying tax on this cash at the lowest rate in decades. Maybe the Republican intention behind these cuts is to help drive up employees’ wages but more likely it will encourage the payoff of corporate debt and repurchase of company stock. This would improve the health of America’s largest corporations and therefore drive up stock prices.
Owning the S&P 500 may be all you need to do to take advantage of new economy. Smaller companies and highly leveraged companies could be at a disadvantage as owning debt will no longer become tax-beneficial^2 as a result of the new tax changes.
Of course, it remains prudent to maintain a balanced portfolio that includes many different asset classes. However, you can strategically overweight your portfolio in U.S. value stocks. These stocks don’t have a lot of debt and are in a good position to take advantage of the tax changes next year.
Setting the ethical considerations from the tax cuts aside, there remain many economic risks. Too much monetary and tax-cut driven stimulus coupled with low interest rates could drive up inflation too quickly, creating volatility. A U.S. deficit approaching $20 trillion without any discernible approach to reducing it could create credit risk for the U.S., meaning global investors might look elsewhere for safeguarding their money. Albeit this would be some years away from taking any form.
Meanwhile, keep calm and enjoy a likely continued bull market in 2018. At Eureka Wealth Management, I work with my clients to take a strategic approach with their investments while considering, taxes, risk tolerance, and time horizon for their money. Find out if your portfolio is prepared for what’s to come by booking your free consultation at eurekawealthmanagment.com or call (760) 537-0791.
Happy New Year!