Employers, what's in store for 2019
The market volatility widely expected to dominate 2019 is off to an early start. A decade beyond the Great Recession, in the middle of a 3 month truce in the U.S.-China trade war, Wall Street seems to be feeling the jitters.
To help you prepare for possible market moves and what else might be coming in the year ahead, here's a closer look at what our Principal® Point of View panel anticipates in 2019.
Business confidence has been at a record high, says Robin Anderson, senior economist with Principal Global Investors. Since the 2016 election, there’s been a surge in small business optimism. But a continued market slide could curdle business owners’ enthusiasm. And while Trump’s deregulatory agenda may continue through executive action, business confidence could erode with more pushback from a Democrat-controlled House.
If you’re thinking about growing your business or starting a new endeavor this year, one focused on consumers—assuming continued job and wage growth—might be safer than a business more directly tied to the markets, notes Bob Baur, chief global economist at Principal.
But there is a potential bright spot: The Retirement Enhancement and Savings Act (RESA), which gives more workers access to a 401(k) savings option by allowing small employers to share costs by bundling benefits, could make it through Congress before the end of 2019.
Higher rates may be great for savers, says Anderson, but they can be a challenge if you want to make a big purchase. However, it’s possible that long-term interest rates may already have peaked, Anderson says, so there may be interest rate relief as the year goes on.
Education and savings: Back in style
Because of the last decade’s bull market, many employees may have forgotten or not even encountered this sort of volatility. And advisors haven’t had as much need to educate them.
This year, that likely changes. Employees may need basic education on how to behave—or at least how not to panic—in the throes of a downturn. Specifically, they may need to be reminded about the dangers of cashing out at the wrong time, says Brett Fisher, a product manager at Principal.
Employees looking to retire this year merit special financial consideration, says Fisher. If they’ve enjoyed the last decade of robust returns, they’ve probably been feeling secure even when saving a little less. Now they may have to consider how contributing more to their 401(k) might be necessary to help them stay on track, Fisher says.
Due to expected market volatility, this may be the year for participants to adjust to a typically more conservative portfolio, especially if they're closer to retirement. Baur notes that a real estate investment trust or commercial real estate investment might have less volatility than stocks or corporate bonds. “It can be even more important to find an active manager who can ferret out value and profits,” Baur says. “Passive investing is likely going to lose some of its luster as the year goes on.”
Anderson expects the labor market to remain strong in 2019 and wages to grow (as high as 3.5% by midyear, according to Baur). If inflation stays under control, that also could translate to higher real incomes for employees. One caveat: Anderson has noticed a recent uptick in jobless claims, which may or may not be an early sign of weakening employment.
- Talk with your advisor about how anticipated market and economic changes may impact your business in 2019.
- If your employees come to you with questions, here are 3 helpful resources:
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