Trump 2.0
Written by: Allison Schmidt, Financial Advisor, CFP®, CPA
Donald Trump assumed office this week marking the beginning of his second term. Our discussions with clients have varied significantly depending on political leaning since the election, all reflecting strong sentiments. While Donald Trump’s various statements have made identifying his primary agenda items somewhat challenging, here are three of the items that he appears to be focusing on as he starts his second term.
Trade and Tariffs: One of Donald Trump’s major priorities is the adjustment of trade policies through increasing and implementing tariffs.
- Key Consideration: Potential rise in inflation.
- Strategy: Invest in assets that appreciate with inflation, such as stocks. Avoid overweighting in lower growth assets like bonds and cash. Historically, inflationary periods have correlated with heightened stock market volatility, as seen in 2022 when inflation peaked at 9.1% and both stocks and bonds ended the year with double-digit declines. However, investors who remained steadfast saw significant returns with the S&P 500 rising over 53% in the subsequent two years (12.31.22-12.31.24). Economist Jeremy Siegel from the Wharton School of Business emphasizes, “Stocks are not just a good inflation hedge, they are a perfect inflation hedge.” Thus, if an increase in inflation is anticipated, it may be prudent to ensure your portfolio includes assets positioned to benefit from such an environment.
Tax Policy: It is likely that Donald Trump will seek to extend The Tax Cuts and Jobs Act (TCJA) of 2017. This act, a significant legislative achievement during Trump’s first term, reduced the corporate tax rate from 35% to 21% and introduced various business incentives, such as the Qualified Business Income Deduction for pass-through entities. Additional tax cuts and business-friendly measures are anticipated.
- Key Consideration: Changes to or elimination of the State and Local Tax (SALT) deduction cap.
- Strategy: Consider the timing of tax payments. For instance, if an increase in the SALT deduction cap is expected for 2026, defer state and property tax payments to the calendar year 2026.
Deregulation: Trump’s policies will likely aim at reducing regulations to promote business growth and encourage domestic investment.
- Key Consideration: Emerging growth opportunities and potential unintended consequences.
- Strategy: Carefully evaluate portfolio allocation and risk tolerance to capitalize on potential growth opportunities as regulatory environments evolve. Keep in mind that deregulation can sometimes lead to unforeseen consequences, such as economic shifts and market fluctuations.
Investing always involves uncertainties, and this period is no different. We remain committed to monitoring developments in Washington and creating financial strategies for our clients to leverage opportunities. Our income and investment processes will continue to guide us through what may be a volatile market.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Higgins & Schmidt Wealth Strategies, a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not ensure a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity.
Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ _may result in a 10% IRS penalty tax in addition to current income tax.
