How Trump's Presidency Impacts Your Financial Future

We have a new president elect, and some people are happy. Some people are sad, but nearly everybody is wondering what could this mean for their financial future? So today I'll go over the next four years and how they might impact investments in the market. And then taxes, the economy, inflation, and social security. And then at the end of each one, I'll give you some practical steps, some things that could be helpful as you're planning your own retirement. And by the way, if I haven't met you yet, I'm Dave Zoeller, and I'm the owner of a retirement planning firm, Streamlined Financial. Which has been helping people manage their wealth all the way back to when Clinton was president. And me personally, I've been helping people for the last decade and a half. So we've seen quite a few different political environments and how they've impacted clients lives. So let's get into it. So when it comes to investing, people will say, well, now that Trump is in certain companies or sectors are going to benefit, right? Isn't that good for energy stocks or for oil companies? Now it might seem like certain industries will do better, whether it's a Republican or a Democrat in power. And you know, you might think oil companies would do better, or maybe clean energy would do better under Democrats. It seems plausible, but it's not always as easy as that. Take a look at this chart. This is the performance of clean energy versus traditional energy. And we can see this first, everything over here is when Trump was president and clean energy outperformed traditional energy by 43% per year during his presidency. You'd think it would be the reverse. And then Biden starting in 2020, traditional energy outperformed clean energy by 53% per year when he was president. That's kind of interesting, but it's not just this example either. There's another chart here that shows sector performance in presidential years, going back all the way to 1976. You'll notice that no single sector consistently outperforms or under performs based on which party is in power. I mean, you look at energy and communication and technology, they've had mixed results, regardless of whether it was a Republican or a Democrat. That's in office. So the takeaway here, in my opinion, is that the broader economic environment that tends to have a greater impact on industry performance or sector performance than politics alone. Now we'll get into the economic environment moving forward and coming up in this video. But first, another common question that I hear is, does the party in power really impact the total market performance? The short answer is no, it doesn't. But let me show you the facts here. Here's the compound annual growth rate going back all the way till 1957 in Dwight Eisenhower. And you can see there's no real rhyme or reason to a Republican or Democrat doing better or worse. So really here, again, it's saying it doesn't have that big of an impact. Here's the two averages here of Democrat 9.3 and Republican 10.2. But you might say, well, maybe it's different this time because now we have Republican House and Senate and President. So that's got to be different, right? Well, here's some history regarding that. Again, this is the S&P 500, all the way from 1933 to 2022. And this is what happened with the Republican president and the Congress being Republican. That was the result. And you can see whatever the result is, whether it's divided or all Democrat or any situation here, there's no statistically significant difference in the stock market performance based on who's in power or what the Congress is made up of. Now, it's not saying that this is definitely going to happen, but it's just saying that there's no stats here to say one way or the other. Now let's move on to taxes because this really impacts the economic environment. And as we get into that, let me know if you like this type of video so far, it really helps me to know what type of videos are most helpful to you so I could do more of them in the future. Now for tax planning, this is one of the most important things that we do for our clients at Streamline Financial, because it really contributes to some of the biggest dollar savings that they can get each year, especially when they start to take money out of their accounts. And up until a few days ago, it was kind of a big unknown what was going to happen with taxes next year. And now we've got more clarity. That's because the Tax Cuts and Jobs Act, it's also called the Trump Tax Cuts from 2017. That was set to expire in 2025. And now that we know Trump is going back into office and Republicans have control of the Senate and the House, it seems more likely that those tax cuts or some of them are going to be extended. And here are some of the main areas of impact. So number one, lower individual tax rates. That was part of the TCJA Tax Cuts and Jobs Act. Number two, increased standard deduction, almost doubled. And then number three, the child tax credit expansion. Lower tax, corporate tax rates doesn't impact us directly, but we'll see what happens with what the administration might do here. But lower tax rates does often stimulate economic growth. And then the estate tax and gift tax exemption. That's important for wealth transfer when talking with clients. Now, we still don't know what's going to happen for sure. Congress will either extend these tax cuts or reauthorize the 2017 tax cuts or come up with a new tax bill. But with Republicans in control, it seems likely that these tax cuts are going to continue in some way. And remember, everything here is my opinion. So don't make any major changes with things that you're doing. Talk to a financial professional when you're planning taxes and income and all of these things. But here's a few practical ideas to bring up to your financial person, the either CFP or CPA that you work with. Number one is Roth conversions. So some people were planning Roth conversions in 2024, 2025, because they were thinking that the Tax Cuts and Jobs Act was going to expire next year. Now they've got a possibility of favorable tax rates going past 2025, which gives them a little bit more time, maybe an ability to spread out Roth conversions over a certain number of years. And that also applies to the second area, which is capital gains. So this is related to long-term capital gains. With this potentially extended lower rates that we might have, there's more flexibility and time to take gains strategically versus the next two years. And then the third thing here is charitable bunching. Since the higher standard deduction will likely remain, that means less people itemize deductions. So consider this idea of bunching. If you give anything or this idea of using a donor advised fund to get maximum benefit for your charitable deductions. Let me, let me give you an example here. Uh, just draw it. Um, so let's pretend you've got real estate mortgage interest of 10K and real estate taxes of 10K. Now we're looking at the schedule. Hey, this is the, where you write all your itemized deductions. And then you've got 10K of giving. What some people do is they might take in 2024, they might take the standard deduction. Uh, it's a little bit over 29K. And rather than give to a charity in 2024, they will wait until the following year and double up or bunch their giving. So instead of 10K per year, they're going to put 20K in for charitable, and then you'll have the 10K real estate in, uh, mortgage interest and tax there. So what you're doing on a schedule A is really you're having itemized deductions of 40K, this is the simplistic version here, 40K. So you can maximize the benefit of those gifts. And then the following year, 2026, you'll do no charitable, and then you'll have the standard deduction again. So I don't know, hopefully that makes sense. Just with that messy example there, but something to bring up to your financial planning planner, the idea of charitable bunching, and then getting a donor advised fund involved in that helps spread out so that, uh, the charities that you do support continue to receive something every month because it's coming from your donor advised fund. But I, I could say, if you have more questions about that, let me know in the comments and then I could do a better explanation video of that. But now let's move on to inflation and the economic impact. So when Trump was elected, the markets reacted in two very different ways, which might give us some insight into this mixed impact of, of, of policies. Maybe now, uh, the following days after the, the news stocks surged because they've got apt optimism around, uh, tax cuts around pro-growth policies. And then, uh, those things that most likely are going to boost economic activity and benefit businesses, because the idea is more money in people's hands or in businesses, uh, that means more spending power. And that means that more demand, it drives demand higher, but also as demand goes up, it can push prices higher too, which could spark inflation. And that's why on the opposite side, the bond market reacted differently. Bond yields after the news, those yields jumped up immediately. And that's even with the fed that was planning more rate cuts. So the bond market, that reaction that reflects maybe concern that the more spending, uh, combined with potential tariffs that might drive inflation higher. And then other financial experts, they're predicting, uh, that Trump's administration, they're going to continue cutting taxes as well and increasing spending, which could drive inflation up and bond prices down. So really here, it's a balance between the two because it looks like the administration they're committed to innovation and they're committed to product productivity growth and higher productivity helps keep inflation in check. So it's, uh, there's a balance, but what do we do practically for just for us? Well, I would say during your next review of your retirement plan, focus on the income plan and withdrawal strategy here, and also the investment strategy fits in because we want to just make sure you're prepared for whatever economic season that comes. And specifically we're thinking about a higher than expected inflation season. And we're not saying you got to have everything prepared for that season. We're saying, well, here's the example. There's four economic seasons here. It's either higher than expected growth or lower than expected growth or higher than expected inflation or lower than expected inflation. And you can see that here as well. Um, in, in each one of these quadrants and there are asset classes that our clients hold that have historically done well in whatever economic season happens, whether it's higher than expected inflation or deflation, you know, maybe it is certain inflation protected bonds for, for that season. Again, no one knows what's going to happen, but knowing that you have asset classes that could do well in each one of the four seasons could make sense. Again, something to talk to your advisor about. The second thing to think about is it's good to have the right amount of cash in your portfolio and stick to it. And I'm thinking of a percentage here. Cause it's common to want to hold more cash when you're uncertain about the future. But too much cash that doesn't always help, especially if there is a higher than expected inflation season, right? Our clients tend to, they like the idea here of having buckets of money, just in this simple way. Don't pay attention to the dollar amounts, but having something in cash or, or very cash-like type investments and equating a certain number of years. Cause it's good to know if we have an extended bear market, it's good to know that we have, uh, things on the sideline so that our income plan doesn't have to get impacted if markets are taking a dip. Now let's talk about social security. So Trump said that he plans to protect social security and no cuts to benefits and also no increase in the retirement age. But one idea that was floated out there is to eliminate income tax on social security benefits. Sounds nice, but there's a trade-off to do that, right? Cutting taxes means that there's less money going into the social security trust fund, which could deplete it faster than currently predicted. So as a practical step here with social security, personally, I wouldn't change anything to your plan related to social security instead, I would think about putting a little bit more effort into a specific, your specific strategy. Um, and, and see what makes sense. If you're married, there's a few things to do related to when to take the benefits. And this video I'm going to, maybe it's not on the screen yet, but I'm going to share a video that could help to walk through a couple of case studies as you're planning for social security. So we covered the next four years, what it might look like related to investments in the market, taxes, the economy, inflation in social security. I hope that was helpful. And if it was, please give it a like, and then, uh, look for this video for the social security planning case studies, and then another one on how to make your retirement the best years of your life yet, so take care. And I'll see you in the next one.