As Donald Trump settles into office, what impact will the 45th president have on your wallet, financial plan and standard of living?
Trump’s supporters think he will be America’s economic savior. His detractors think his plans spell fiscal disaster. The truth most likely lies somewhere in the middle. So, for now, the best advice is to not make any drastic moves.
If you’re a Trump backer, it might be tempting to invest heavily in infrastructure stocks. If you’re a Trump critic, you might be thinking of buying gold. But it’s critical to remember that decisions made in the White House typically matter less than decisions in your house. If you want to meet your financial goals like getting out of debt, sending your kids to college or enjoying your retirement, you need to become educated so you can take control of your money – no matter what happens in Washington.
We follow the global markets 24/7. Following are five factors everyone should be watching during the first 100 days of Trump.
Trump has proposed some unprecedented ideas, like eliminating two federal regulations for every new one enacted. But the new president and his administration – especially those cabinet-level leaders Trump pulled in from the private sector – are in for a rude awakening the morning after the inauguration.
They will face immense challenges enacting any significant changes to a federal bureaucracy that has become bloated over decades. New cabinet secretaries who are accustomed to making quick decisions in their companies – like laying off workers to save costs at a moment’s notice – won’t be able to do that in Washington. Don’t expect the government to become smaller and more efficient in the near term.
In Congress, Trump will confront both Democrats and fiscally conservative Republicans who could oppose legislation such as tax cuts and infrastructure spending. Republicans do not have a super majority in the U.S. Senate (three-fifths of Senate seats), so Trump may need to reach out to Democrats and compromise in order to see legislation enacted.
A Market Pullback and More Volatility
The equities markets have already priced in most of the anticipated short-term success of the new administration, as the S&P 500 has gained more than 8% since its November lows. This reality makes the markets susceptible to disappointment in the first 100 days of Trump if his proposals don’t move ahead quickly. Astute investors buy into the stock market the same way they buy anything in life, when price is down and things are on sale. Having this mind set allows you to enjoy above-average market returns versus investing in the market regardless of where price is.
Market volatility may also rear its ugly head. No one is sure how Trump will react to an event like an international crisis. President Obama scaled back U.S. involvement in global hot zones. But if Trump takes a more aggressive approach, markets will respond accordingly, and, perhaps, volatilely.
Investors should empower themselves by preparing for more volatility and learning techniques for succeeding in any market conditions, just like Wall Street professionals do.
Republicans are proposing the largest tax overhaul in our lifetime. But it remains to be seen if they will need to concede anything to Democrats to get it enacted.
Trump’s plan calls for major cuts in individual federal income taxes. For example, households making roughly $143,000 to $700,000 will see their taxes cut 12.6%, according to the Tax Policy Center.
If these tax cuts are enacted, the key will be what taxpayers do with their extra income. Spending it could provide a boost to the overall economy because consumer spending accounts for nearly 70% of the U.S. economy. Meanwhile, saving it and investing it wisely – while avoiding hefty money management fees – could help more Americans better prepare for retirement.
Financial education is going to be critical, as Americans will need to learn how to manage bigger paychecks. It will be necessary for many people to use this extra income to pay down debt and invest for their future. Many Americans have experienced strong financial headwinds over the past decade or more. For example, cost of living increases have outstripped income growth over the past 13 years, prompting many people to amass higher debts and underfund their retirement. In fact, 80% of Americans aged 30 to 54 feel they will not have sufficient money saved for retirement. Investors need to learn to find high-potential, low-risk investing opportunities to grow their money and get back on track for a secure retirement.
Interest Rates and Fixed Income
The Federal Reserve already hiked interest rates 0.25% in December, and has hinted at three more hikes in 2017. But don’t count on that. Many expected multiple rate hikes in 2016, but the Fed only raised rates once.
Looking ahead, most of the impact of 2017 rate hikes has already been priced into the markets. Investors should avoid any major moves in their fixed-income portfolio. Avoid selling any bonds, as the market is currently oversold. The only exception might be selling bonds that have rallied recently in order to take profits.
If Trump’s plans to boost the economy work, we would not be surprised to see immediate 3% GDP growth, and a return to annual 11% growth in U.S. equities. We could see the Dow, which has been hovering around 20,000 for the first time , reach 30,000 over the next four years.
If this is starting to sound like a best-case scenario, that’s probably because it is. With uncertainty over which of Trump’s plans will be enacted into law, no one should rely on Washington, D.C., as the source of their financial security. But none of this really matters to professional traders and investors who know how to create their own economy by finding low-risk, high-reward investing opportunities regardless of what is happening in the White House or on Wall Street. Our community of educated investors know there are professional-grade strategies anyone can use to grow their money successfully under any market conditions. It all starts with a plan. Sign up for a free investing workshop to set that plan in motion.
Meet the Authors
Sam Seiden is Chief Education Officer at Online Trading Academy, where he has worked for 10 years. A former professional trader, Sam has more than 25 years of experience trading equities, futures and forex.
Eric Ochotnicki is an instructor at Online Trading Academy. In more than 20 years as an active investor, Eric has traded at and served as a member of the Chicago Board Options Exchange, and been a member of the Chicago Board of Trade.