As we stand at the end of 2024 and look back, seems like 2024 has earned its spot in history. After a historic campaign, Mr. Trump won the 2024 presidential election and Republicans took control of the Senate. Given the intense political divisions in recent years, along with economic policies as a key battle point, it’s not surprising that the 2024 election caused a lot of angst. However, regardless of which side of the aisle we are on, the key financial issue is how the election result might affect our portfolios and broader financial planning considerations.
As citizens, voters, and taxpayers, the election matters. It can have important implications for our everyday lives. So, how can we, as investors, maintain perspective and take the right financial actions now that we know Mr. Trump will be inaugurated as president?
History shows that the economy has grown regardless of the political party in power. Although it may seem unintuitive, this is because politics often has a small impact on the economy and markets. Looking at the past 100 years, the stock market and economy have done well under both Democratic and Republican leadership. The business cycle is what has driven long run returns over the past century, not two or four-year election cycles. These long-term business cycles result from broader factors such as industrialization, globalization, information technology revolution, trends in artificial intelligence. Long-term economic trends and corporate earnings tend to have a more significant impact on market returns than individual presidencies or political affiliations.
There is no doubt that the election results impact personal circumstances via policy changes. For financial planning, perhaps the most important area when it comes to President Trump is tax policy. As we know more, we will carefully assess this but here is a short summary of the main areas of tax considerations:
· One area where taxes are historically low is estate taxes, which are imposed on the transfer of assets to heirs after death. The Tax Cuts and Jobs Act is likely to be extended beyond its 2025 expiration, which will allow estate taxes to continue staying at historical low levels.
· Fiscal policy may see changes, with proposals that could increase budget deficits, although President Trump has committed to preserve major entitlement programs like Social Security and Medicare.
· Another area to watch is trade policies, especially when it comes to tariffs. A tariff is a tax that a government imposes on imported or exported goods. Tariffs are a type of trade barrier that can increase the price of imported goods, making them more expensive for consumers and businesses. Mr. Trump is proposing significant additional tariffs. Unlike tax policy which requires congressional approval, the president can impose tariffs through executive order. Mr. Trump’s proposal will raise tariffs to their highest level since the Great Depression.
· A final point is the fiscal deficit. This has been a challenge for some time and is one of the factors that influences growth and broader economic stability. It is not clear how President Trump will manage the deficit, but with the growing federal debt, it’s prudent for investors to expect tax rates to eventually rise. Planning for this possibility is only growing in importance.
Clarity around taxes, tariffs, and other policies will help, but maintaining perspective around long-term trends is still the best way to achieve financial goals. This is because other factors, like new technologies and job growth, often matter more than politics for the economy.
It is also important to remember that big changes in government policies usually happen slowly. What is promised during the campaign trail is not necessarily what actually happens when the president takes office.
The bottom line? The long-term impact of elections on the stock market and economy is often overestimated. Presidential elections are significant political events, but it is crucial for investors to maintain perspective on their long-term financial goals and strategic asset allocation and avoid making major portfolio changes based solely on election outcomes. Markets have shown the ability to adapt and perform under various political scenarios over time.
Of course, the above reflects my views as a financial advisor, not as a politician or citizen.
And as another year comes to an end, let us welcome the New Year - here is to continued success, thriving relationships, and new achievements in 2025. Wishing you and your loved ones a wonderful holiday season and a joyous and prosperous New Year.
Lavina Nagar, CFP(R) is the president and founder of Maya Advisors, Inc., a financial planning and investment firm in Palo Alto, California.
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