We want to share some perspective on what the recent presidential inauguration means for your investments and financial planning. The short answer is that the majority of people should stay the course with their financial plans. The economy and investment markets have both done well regardless of which party controls Washington, so the pursuit of financial progress remains broadly unaffected.
That said, the new administration does bring policy change (the president already signed many executive orders on inauguration day), so here is a summary of the key areas that could impact some aspects of your financial planning in the coming years:
Tax Policy Remains Supportive: Relatively low tax rates are likely to be maintained for individuals and businesses, and contribution limits to retirement accounts are expected to continue. Specifically, the Tax Cuts and Jobs Act will likely be extended, keeping taxes at similar rates to today. While this is positive news for many, it's prudent to prepare for potential future changes especially with the national debt continuing to grow.
Federal Budget Requires Care: The government continues to spend more than it receives in taxes, resulting in a large deficit. Neither party has made serious efforts to rein in the deficit in recent years, leading to a national debt that now exceeds $36 trillion. A new Department of Government Efficiency (DOGE) has been established to identify potential spending reductions, although it is unclear how much it will help. Planning for possible changes to future tax rates is only growing in importance.
International Trade Could Affect the Economy: Trade policy changes may affect the economy, particularly regarding tariffs and international relationships. As of November 2024, the U.S. imported $78 billion more than it exported, although this is not necessarily a bad thing, as it reflects strong domestic consumer demand and economic strength. The purpose of tariffs is to protect domestic industries, but some worry it could spur inflation too. This could be overseen by a new External Revenue Service.
Energy Prices Affect Consumers: The U.S. remains a global leader in energy production and will be a continued focus of the new administration, especially with the new National Energy Council. For markets, greater energy supply could mean more stable prices, especially as geopolitical conflicts continue to rage around the world. Energy prices are also a primary driver of overall inflation, and gasoline prices can affect household savings rates.
Labor Market Dynamics Will Likely Shift: While the news is focused on illegal immigration and border security, a change in immigration policy could impact legal skilled, educated workers as well. Currently, job openings exceed available workers by 1.2 million positions, which is a sign of a healthy workforce and economy. That said, maintaining a safety net to protect against a job loss or change remains a worthwhile consideration.
Investors face a complex environment in 2025 with steady economic growth balanced against fewer Fed rate cuts and high valuations. Following Donald Trump’s election victory in November, we also saw a rise in investor sentiment, although this has since softened. While good policies do matter and can drive productivity and growth, there are many underlying factors that impact investors. Markets never move in straight lines, so a balanced, diversified approach remains crucial for long-term success.
The bottom line? Policy changes deserve attention, but they shouldn't override your long-term financial plan or investment strategy. Markets have shown remarkable resilience through many political cycles, and maintaining a balanced, diversified portfolio remains the best approach for achieving your financial goals. As always, please let us know if you want to schedule a call to talk...