By Staff
Answering economic, financial, and tax questions for the year ahead
Whether you’re a seasoned investor or just starting to set money aside in a savings account, there’s always going to be that element of what if? What if the market takes a downward turn, or zooms upward? How will a new presidential administration affect the market? Are consumer prices going to improve or worsen? Is real estate still a safe investment? We face these questions frequently, along with how federal and state tax codes may change, which affect our financial choices and decisions.
Coming up with a savings and investing plan isn’t a one-size-fits-all practice—instead, you need to create one that’s uniquely suited to your resources and goals. But there are certain parameters you should keep in mind if you’re resolving to make the year ahead your most lucrative yet.
New Year, New Habits
If you’re committed to making a money-related new year’s resolution, let it be a combination of setting aside savings, paying down your debt, and then investing. These three actions are crucial to good financial well-being, but far too few individuals adhere to them.
Saving is a critical first step. The average American can’t meet an unexpected $400 expense, so having savings on hand is both offense and defense. When life happens, your savings keep things running. But savings are about more than simply having money on hand to handle unexpected problems. Having a little bit extra set aside will mean you have discretionary money you can put into financial opportunities that arise.
The other important move is to pay down your debt, particularly credit card debt. Because debt incurs interest, you are losing more money over the time you take to pay it off. Credit card debt is especially bad because, unlike assets that appreciate over time, such as your home, this kind of debt doesn’t actually hold any value to you.
Once you’ve tackled saving money and paying off debt, you can develop a financial plan with short- and long-term investment goals; preferably in consultation with a financial advisor. Review the plan periodically and do not lose sight of your goals.
Investment Strategy
If you’re thinking of investing, you’re probably well-versed about the differences between bull and bear markets. The challenging part about watching the market is that it fluctuates over a short period of time; instead of paying attention to these frequent changes, you should evaluate long-term patterns. And a professional fiduciary can guide you in this regard.
“Markets can become volatile very quickly,” explains Bankrate, a consumer financial services company based in New York City…Concerns surrounding the presidential election year may also [drive] markets to be more volatile.” In fact, we did see a highly-fluctuating market on and after the November presidential election, with the Dow Jones Industrial Average ultimately soaring to just above 45,000 points (Dec. 4th) as the holiday season began—the highest it’s ever been. The S&P 500 and NASDAQ paced along similarly.
So, does this imply market gains will continue throughout 2025? It’s hard to say. Those who are looking to invest will want to exercise a certain amount of caution. Many fiduciaries recommend creating a mix of assets that are appropriate for a client’s unique needs. These will be determined by factors like age, risk tolerance, time frame, and liquidity needs.
What to Expect in 2025
You wouldn’t be wrong to be cautious about the market in 2025. After all, effects from a recession-like economy and inflation continue to linger in nearly every industry. Recovery has been slow, but it has been steady. Experts see reason for optimism, even if it’s impossible to say with certainty. Some economists are predicting a positive year for the market—a bit of a surprise given the concerns of inflation and prices.
Sage Policy Group—an authoritative economic and policy consulting firm in Baltimore led by Anirban Basu and Zachary Fritz—evaluate industry and government indicators of our domestic economy with inputs from the global market. Their overall analysis frames market trends in a consumer-friendly context. According to their 2025 Economic Outlook, inflation is reaching the 2 percent target annual rate. “We’ve achieved that since May, but inflation has accelerated over the past two months, and we need it to slow down during the first quarter of [2025]. Big picture: we’ve made a lot of progress on inflation, but there’s work left to do in 2025.”
Despite the modest improvement made with inflation, consumer prices remain high. “Inflation—the rate of price increases—has slowed, but the price level—how much things cost—is still much higher than it was before the pandemic,” Sage says in their report. “On average, something that cost $100 at the start of 2016 now costs more than $133. If prices had kept increasing at the pre-pandemic rate, that purchase would cost about $120 today. Unfortunately, the price level is not going back down. So, prices will rise at a slower pace in 2025, but they’ll still feel really high throughout the year.”
More importantly, consider what you can afford to invest long term. If you invest in assets you can hold onto long enough for them to appreciate, you’ll come out on top whether any one year is a bull market or bear.
In this regard, you might be thinking about investing in real estate—generally considered a safe investment. In Maryland, the average residential sales price rose 5.5 percent to $489,996 (in November 2024, compared to November 2023), while the median sales price grew 6.3 percent to $425,000. Overall home sales grew 1.4 percent according to Maryland REALTORS November 2024 Housing Statistics (the latest numbers available at the time of this writing).
But mortgage rates are not dipping. Despite the recent Fed interest rate cuts beginning in September, mortgage rates actually climbed from an average of 6.1 percent to near 7 percent by the end of December. There is good news, however; The Federal Housing Finance Agency announced in early January that the conforming loan limit for the year is up to $806,500, which opens more opportunities for homeowners and buyers. The means borrowers can qualify for larger loan amounts with the perks of conventional loans, including competitive interest rates and flexible terms. Basically, this increases buying and refinancing power.
These factors should encourage prospective home buyers/investors (and sellers) to consult expert real estate agents and lenders when considering their housing investment goals.
Overall, Sage Policy Group expects an improved economy in the year ahead. “2025 is shaping up to be a decent year for growth in America,” Basu predicts. “Recession is no longer part of the baseline forecast, though I’m still a bit nervous given the ongoing destabilization of geopolitics and stretched asset values. Overall, I expect the economy to expand at about 2.3 percent in 2025.”
Changes You Should Know About
There is a significant fiscal change that will be felt by more Americans across all financial spectrums in the year ahead. It’s not the price of gasoline. Nor those of milk and eggs. It’s the end of the Tax Cuts & Jobs Act of 2017 (TCJA), set to expire on December 31st, 2025. It was the largest tax code overhaul in three decades and is most known for cutting the corporate tax rate to 21 percent, capping deductions for state and local taxes (SALT) at $10,000, doubling standard deductions, and expanding the child tax credit.
Unless Congress acts, upon expiration of the Act marginal tax rates for individuals will revert to pre-TCJA levels, including a maximum rate of 39.6 percent from 37 percent. The standard deduction, for single or joint filers, will return to pre-TCJA levels, with an adjustment for inflation. But single and joint filers will be able to claim a mortgage interest deduction (MID) on properties up to $1 million in value. Itemized deductions will become more important with the lower standard deductions.
There are many, many tax code adjustments at play that will need to be addressed with the TCJA expiration looming. What does this all mean? Likely, your financial position will change. But every person’s situation is different and, perhaps, the best way to educate, understand, and plan ahead for these changes is to consult a certified professional accountant or financial planner.
Make Your Checklist
Here are a few important items you should consider:
Review your 2024 bank statements: This will help you assess where you’re losing money unnecessarily, such as overdraft charges, withdrawal fees, late payment charges, or interest. Evaluate how you can avoid certain fees—some charges might even be able to be waived by your bank.
Review your 2024 expenditures: This can help you assess how much useless spending you’re engaging in and how you can apply that toward savings or investing so it can help you reach your financial goals in the long term.
Plan your 2025 expenditures: Saving is easier when you have a budget, and the first step to creating an annual budget is to figure out exactly what big spending you have to do.
Analyze your savings opportunities: Planning your expenditures will help you realize if you have excess money to set aside. Figure out which options are best for your needs. Some of it can go into a savings account, but you might want to put other dollars toward stocks, bonds, mutual funds, or other investment vehicles.
Consider fund diversification: When you have a diverse portfolio of investments, you minimize your risk of loss. If one investment weakens, you still have money in other investments (and you can afford to wait patiently to see whether the depreciated investment improves).
Consult the right professionals: Not all financial professionals do the same thing, and you should seek one that best fits your needs. A CPA, or certified personal accountant, works to help you minimize your tax liability. They are not the same as a financial planner, who help provide guidance and advice on investment strategy.
