With the election of Donald Trump as President, we expect a wild ride in the investment markets. Indeed, they are already turning sharply negative due to the uncertainties ahead (recalling that the markets hate uncertainty). Will the new President really build an expensive wall across our Southern border? Will he introduce legislation that will nullify the Affordable Care Act and throw millions of Americans with pre-existing health conditions into health insurance limbo? Do taxpaying non-citizens who have children born in America have reason to fear deportation? Are our allies abroad really going to have to renegotiate their trade and security arrangements with the world’s superpower?
It is helpful to remember that these market gyrations are almost always bad times to trade and particularly to sell. Fortunately, we’ve worked hard to keep you in an allocation that is appropriate to the level of risk you can afford to take. For our retirees and those close to retirement, your bond portfolio will provide the buffer needed to weather the upheaval. Our younger clients have time, and ideally this correction will provide an opportunity for future growth.
In addition, we have months before the new President takes office. Traders and analysts have plenty of time to settle down between now and the first 100 days of the Trump presidency and evaluate whether America’s corporations are, indeed, worth much less than they were before election night. We might see that they’ll be unusually jumpy for the next four years, but in the end, the intrinsic value of stocks does not change with the occupant of the White House.
One of the more interesting things to watch is a tax reform proposal sometime in early 2017. Along the campaign trail, candidate Trump proposed simplifying our taxes down to three ordinary income tax brackets: 12% (up to $75,000 for joint filers), 25% ($75,000 to $225,000) and 33% (above $225,000). The wish list includes a doubling of the standard deduction, with itemized deductions capped at $100,000 for single filers; $200,000 for joint filers. Capital gains taxes would be capped at 20%, federal estate and gift taxes would be eliminated and the step-up in basis would be eliminated for estates over $10 million.
Remember, however, that these proposals were made before anyone imagined that Americans would elect an undivided government with the Presidency, the House and Senate all under the control of one party. The next four years—starting with the first 100 days of the new Presidency—represent an opportunity for the Republican party to do something much more ambitious than simply tinker with our nation’s tax rules. Influential Republican leaders—including House Speaker Paul Ryan—have reportedly been planning for some years to rewrite our nation’s tax code. What, exactly, would tax reform look like? At this point, we simply don’t know. The goal would be tax simplification, but we’ll wait to see as this plays out.
Who knows what the future holds and we have never pretended to predict it. This is why planning is an ongoing process. We’ll pay close attention to changes that affect you and will continue to help you adjust to take the best advantage of the situations the world presents.
Let us hope this country works together to heal from this painful election. From a place of love, joy, and respect, all things are possible. As always, let us know your questions, comments, and anything we can do to serve you better.