Fear, fear, fear. Yes, there is a lot of fear since the presidential election. The morning after the election I ran into a long-term acquaintance who told me, “This weekend, I’m placing my home on the market and I’m moving to Canada!” Of course, I thought he was joking. He wasn’t. This is a person who I know to be both intelligent and reasonable yet he sincerely was considering leaving America because Donald Trump was elected our next president. On the other side of fear, there are a lot of people who are both excited and optimistic about our future under a Trump led White House. Personally, I choose optimism for several reasons:
- The brilliant founders of our constitution created a ‘checks and balances’ form of government. This is not a dictatorship and even when one political party controls both the White House and Congress, those checks and balances put a lid on presidential power.
- As far as the stock market is concerned, historically (since 1928) the market has had its greatest gains when the presidential election results in control of both the executive branch and congress (average gains of 16.9%).
- In his acceptance speech, Trump said he’ll focus on a total overhaul of our infrastructure concluding that it will be ‘second to none’ with total investment of $1 trillion. Infrastructure spending is sorely needed and will create millions of good paying jobs. And the people behind those jobs will pay billions in income taxes.
On a personal note, I have long felt that we need a complete overhaul and simplification of our income tax system, and this appears to be one of the cornerstones of the Trump economic plan. He plans to lower income taxes, cut the income tax brackets from seven to three (12%, 25% and 33%), and eliminate the Obamacare tax (3.8%) and the alternative minimum tax. He also plans to raise the standard deduction and place a cap on itemized deductions. While certainly not everything I had dreamed of, the result will be much simplified income tax reporting.
Small businesses make up 99.7 percent of U.S. employer firms, 64 percent of net new private sector jobs and 49 percent of private sector employment. Trump’s promise of lower taxes and significantly reduced regulations is music to the ears of small business owners whom I expect to react by expanding operations and hiring. Lower tax rates for corporations should also produce positive economic results. And if Trump makes good on his promise to repatriate domestic companies foreign deposited money, this will also be a significant boost to our economy.
So how can you turn these changes into a money-making strategy?
- Invest in stocks. These changes should produce tailwinds for our domestic corporations who will pay less taxes and should see increased consumer spending as millions of Americans benefit from job growth. Whether it’s through your 401k, IRA or personal investments, investments in stocks or stock mutual funds should produce superior returns in the years ahead.
- Be cautious of bonds. My guess is that the result of all of this economic activity will be a noticeable rise in interest rates and inflation. Rising interest rates are bad for bonds so you’ll want to review your bonds and consider reallocating towards high quality, shorter maturity bonds or bond funds.
A final note. There will likely be a ‘disconnect in timing’ between the proposed government spending and collecting income taxes from an expanding workforce. The result is likely an expansion of the national debt before you see the results of an expanding tax base. All in all, there are many reasons to feel optimistic about America’s future.