by Jerry Lynch, CFP, JFL Total Wealth Management
Okay, we’re a little shell shocked with the election results, but let’s take a step back, understand what just happened, and what we need to do from here.
How did Trump get elected? From what I am seeing, this election was more about what people were against then for what they were for. Here is what I think people voted against:
1) Lifetime politicians who do not say what they really feel, but say what they need to get elected and re-elected. Trump won because he had no filter and people actually appreciated that.
2) Both the Democratic and Republican parties really had no clue what the people wanted and the entire political system seems rather corrupt. Trump won because he was an outsider.
3) People are tired of no job growth (more important, wage growth) and our jobs are moving out of the U.S. Trump won because of bad trade deals and tax policies that push jobs out of the U.S.
With this election, the Republicans have won the White House, have control of the Senate and the House of Representatives. This give them the ability to select a new (more likely conservative) Justice of the Supreme Court, the ability to stop Obamacare, and really make the changes that they want without the Democrats having much ability to stop it. This can be either a really good thing, or a really bad thing, depending on how that power is going to be used.
So what happens now?
The stock market: It’s going to be incredibly volatile as what the market hates more than anything is uncertainty, and they did not see this coming. Parts of the world are panicked as Trump has been very vocal about our bad trade deals and these deals are now on the table for renegotiation. So we are seeing a lot of volatility and that will continue until the markets get better guidance on how all this will work out.
Taxes: Based upon the proposed Trump tax plan, there are a few changes that will impact us all.
- Corporate Taxes: Our current top rate is 38% and is the third highest in the world. Trump has proposed a 15% rate. I see this as very positive as most corporate inversions where businesses move to another country is due to our higher corporate tax rates. We do not have to have lowest rates, we just can’t be the highest.
- Carried Interest: This was a point of contention for both Hillary and Trump, and it allows income flowing to a partner in an investment company to be taxed as a capital gain (much lower rates) vs. ordinary income (much higher rates). Trump has proposed that it will be taxed as ordinary income.
- Personal tax rates would be reduce to the following:
o Less than $75,000: 12%
o $75,000-$225,000: 25%
o $225,000: 33%
- Estate Tax: The estate tax would be eliminated but estates over $10 million would include a capital gains tax except for small businesses and farms.
Trade: Right now on average we have around $60 billion more per month in imports than we do in exports. That is really not good and long-term, that will destroy the U.S. economy. Trump has been very vocal about how our trade deals have been hurting American jobs and our economy. This includes the Trans Pacific Partnership and NAFTA, and his intention is to renegotiate these deals which I personally agree with. Trade deals need to work for the U.S. as well as the partners that we have in the world. They need to be ”win-win” with the purpose of increasing U.S. jobs and helping the U.S. economy, while helping other countries along the way. $700 billion annual deficits in no way help the US economy or the jobs that we need here!
Obamacare: I very much like the concept of having more people in the U.S. covered with medical coverage, however, I really do not like the 40% increase I received on my company plan because to it this year. Many of the larger insurance companies are getting out of the market, most plans offer no out-of-network coverage so often you do have to change doctors. It is not doing what it was sold to us as doing. This change in power more likely than not will either eliminate Obamacare or radically change it from its present form.
U.S. Deficit: The deficit is almost $20 trillion dollars! Let me explain how big of a number 20 trillion is it sounds so much like million and billion.
• 1 million seconds = 11.57 days
• 1 billion seconds = 32 years
• 1 trillion seconds = 32,000 years
There is only one way to fix this. You can’t cut spending enough, you can’t increase tax that much, so you need to do a combination of both. This deficit is still manageable based upon our GDP of around $18 trillion dollars; however, we need to increase jobs and wages in the U.S., reduce our trade deficit, and keep our companies in the U.S. and cut spending. You cannot operate a country, a business or a family spending more money than you make for a very long period of time.
As an investor, what do I do now?
Relax and take a deep breath. This is not the end of the world, just another day in paradise. I really do not care as a wealth manager who is in charge. We figure it out and make changes based upon the new rules and guidelines. Businesses do exactly the same things. They will adapt and adjust.
Don’t do anything radical like sell all your investments as the old rules still apply. It is not about timing the market, it is about time in the market. Remain consistent and you will get consistent results. Kneejerk reactions generally results in really bad results. Never make emotional investment decisions.
This is how I see it playing out:
Yes, there will be volatility and I personally love investing new money (i.e. 401(k)) in a volatile market. It is an investment opportunity of a lifetime so take advantage of it. Call Trump whatever you like but he is pro-business and a rather successful businessman which should benefit the economy. The trade deals we have are bad and we all know that. Changing them and/or breaking away from them will create short term volatility — I smell investing opportunity — but long term it should benefit the U.S. economy and workforce. 71% of the US economy is driven by consumer spending.
More jobs = more consumer spending = more taxes = less deficit = good times.
Another thing with Trump is that he runs great businesses. I have had the pleasure of golfing three of his courses, and the properties along with the people who ran them, were spectacular. I am hoping that he brings to the table the same quality people, especially from the business world, to help our country at this time.
I cannot tell you how happy that I am that this election is now over, not because that any candidate I wanted won, but just because it is over. I am sure that many people are also not happy as well. The reality is that I think all of us wanted change and hopefully this shapes up things enough to make the changes necessary for our country.
Jerry Lynch is a certified financial planner with JFL Total Wealth Management. He may be reached at firstname.lastname@example.org or (973) 439-1190.
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