It’s been just a short time since Donald Trump took the oath as 45th President of the United States, and already there has been a lot of debate around how he will impact the lives of average Americans in terms of jobs, economy, taxes, investments, and more.
Whether you are a Republican, Democrat, Independent or indifferent, you may find yourself wondering how the Trump presidency will affect you, your family and your investment strategy. Will this new president make any unprecedented changes that will profoundly impact your financial future, for better or for worse?
The short answer is “not likely.” History has shown us time and time again that change in the White House is NOT a reliable predictor of change in economic outlook, no matter what campaign promises were made. In fact, although change in the White House can cause anxiety among individuals, it has been shown to have little long-term influence on the stock market. Solid financial advice remains as such: macroeconomics and other world events play a much weightier role in investment performance than presidential influence. Additionally, statistics show that stock markets have performed positively under both Republican and Democratic Party rule in the White House.
Having said that, there are four key areas that you should be aware of moving forward: Investment in specific sectors, tax law changes, industry trends, and emerging markets.
1. Sectors
Be sure that you are not making any specific sector or industry bets. Bring your portfolio to equal weight with the corresponding index on that category. If you have concentration in sectors for whatever reason, consider reducing your exposure to that sector for no more than 5% of your portfolio allocation. Whatever changes come, a portfolio that’s over weighted in any sector is a risky proposition that is unnecessary.
2. Taxes
The U.S. tax code will be an area of revision early in the new administration. President Trump’s goal is to lower taxes to spur investment -- specifically in the U.S. economy. Corporate investment has been too low for too long. Estate taxes and tax-exempt municipal bonds will also face changes in the tax code. If taxes are lower, tax equivalent bond yields will be better for taxable fixed income. Also, the demand for tax-exempt bonds might change due to the lack of benefit for wealthy investors. This will present some volatility to municipal investors. For more information see our tax code comparison.
3. Industries
Specific industries impacted from new administration policies is currently unclear, but healthcare, energy, real estate, construction and infrastructure, financial services, and defense are the most likeliest to undergo change. In addition, sectors that are currently over burdened with government regulation may benefit from the new Trump leadership. However, speculation is just that: unless you are an aggressive investor, the most prudent approach is investment diversification amongst industries.
4. Emerging Markets
There has been concern about how the President Trump, who has advocated protectionist policies, will impact corporations that are investing in emerging global markets. The reality is that the Trump administration is not going to be able to stop the global marketplace even if it wanted to. Expect more advocacy for firms to stay in the U.S. before considering a move to low labor countries.
While you should consider the impact in these four areas, remember that Washington’s political landscape may or may not have a large impact on the financial landscape of our country. Don’t make knee-jerk, reactionary financial decisions based on tweets, news headlines or irrational comments. Instead, keep your eye on long-term trends, and invest accordingly.
If you would like more specific financial investment advice based on your investment goals and portfolio, contact us at 207-879-2352. We are happy to discuss any and all concerns and potential opportunities you may want to pursue as we transition into a new presidency.
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