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Allyn Hughes: Managing 5 finance trends [AdviceIQ :: BC-TRENDS-ADVICEIQ:MCT]

Your financial plan needs to keep pace with larger socioeconomic trends. Here are smart ways to manage the five trends that will be important over the next five years.

_Your cash and bank savings accounts will continue to earn next to nothing. The combination of too much global debt, aging demographics and low energy prices force many countries in the developed world to lower the interest rates they pay on short-term notes. European countries are paying negative interest rates to short-term lenders, meaning the lenders must pay a fee to own debt securities.

Global economic growth remains muted, and there's little reason for the Federal Reserve to raise interest rates significantly over the next five years. This means that savers and investors continue to earn very low returns on their savings and fixed income portfolios.

To do: The distinct downside of this trend is an increase of the overall risk and volatility of your investment portfolios. To earn higher returns, you have to modestly increase your allocation to global stocks and real estate.

_Too much information is the norm. Technology allows smart marketers to better target financial product or service promotions to you via blogs, social media and emails. With so many investment options and relatively easy access to competitive products, analysis paralysis could cloud your decision. The growing abundance of information, however, does not provide actual insight into your personal situation.

To do: Turn off the "cookies" feature in your browser to avoid being bombarded with ads.

_The costs of investing will continue to come down. The growth of assets in exchange-traded funds and low-cost index funds suggests that investors want lower fees. In the world of investing where so many factors are out of your control, lowering your expenses is a smart way to try to boost returns. But cost is not the most important part of an investment strategy. Consistent savings, investment diversification and comfort with volatility are all larger factors in creating financial security.

To do: Instead of pursuing low fees, create an appropriate investment strategy that aligns with your goals.

_Life insurance is going to get more expensive. As a result of the low interest rates and investment returns, insurance companies are likely to earn less on their portfolios, which in turn leads to premium increases for whole and term life policies. Premium income and investment portfolio performance are the chief ways insurers build capital, which they use to pay benefits.

To do: Consider buying term insurance for the longest timespan that makes sense to you. Term life, unlike whole life and other so-called permanent policies, features no cash component and usually expires after a set amount of years. So term is usually cheaper.

If you want permanent life insurance, then consider a variable policy from a lower cost yet financially stable provider. This allows you to take modest investment risk over a long time and grow the policy's investment account.

_Your personal information is more likely to be stolen. No electronic transaction is completely safe. Unfortunately, you can't fully control what personal information you provide while using new technologies (like Apple Pay or your Starbucks app), nor can you make sure the data security of the companies you do business with, including your health care providers.

To do: Be careful with your online practices. Do not open unexpected attachments. Turn off your computer when you are not using it. Use different passwords (and update those passwords often). Use only one credit card and a separate email address for online purchases. Although the society is going tech, paying cash is still your best defense.

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ABOUT THE WRITER

Allyn Hughes is a certified financial planner at Brooks, Hughes & Jones in Tacoma, Wash, who writes for AdviceIQ, which delivers quality personal finance articles by both financial advisors and AdviceIQ editors.

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