Women's Money Wisdom

Episode 254: Money Matters in Trump's Second Term

• Melissa Joy, CFP® • Season 4 • Episode 254

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Can political leadership shape our economic future, or do external factors hold greater sway? In this episode, Melissa Joy, CFP®  dives into the complexities of financial planning during uncertain times, particularly as we approach a new Trump presidency in 2024 or 2025. Using historical events like 9/11 and the COVID-19 pandemic as context, she examines how external shocks often overshadow political leadership in influencing economic outcomes. This episode offers actionable insights on navigating volatile markets, safeguarding your health coverage, and building a resilient financial plan.

Listen and Learn:

  • Political Leadership vs. External Shocks: Explore the limited influence of administrations on long-term financial outcomes compared to significant external events.
  • Healthcare Planning: Insights from a Washington analyst on the Affordable Care Act (ACA) and protections for individuals with pre-existing conditions, especially for early retirees.
  • Real Estate Market Challenges: Analyze the impact of high interest rates and potential SALT deduction changes on homeownership and property investments.
  • Industry-Specific Insights: Learn how regulation and deregulation might reshape sectors like the auto industry in Michigan.
  • Long-Term Financial Strategies:
    • The importance of a diversified investment portfolio to weather market volatility.
    • Crafting a financial plan to manage economic uncertainties effectively.
    • Guidance on preparing for future downturns without overreacting to political or market shifts.

The previous presentation by PEARL PLANNING was intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from PEARL PLANNING or any other investment professional of your choosing. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. Neither PEARL PLANNING’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. PEARL PLANNING is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the video content should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. A copy of PEARL PLANNING’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https:...

Speaker 1:

Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and the founder of Pearl Planning. My goal is to help you streamline and organize your finances, navigate big money decisions with confidence and be strategic in order to grow your wealth. As a woman, you work hard for your money and I'm here to help you make the most of it. Now let's get into the show. And I'm here to help you make the most of it. Now let's get into the show. Just a quick note before we dive in the information that we share is meant to educate and inspire, not serve as personalized financial advice. Everyone's situation is unique, so be sure to consult with your own financial professional for guidance that fits your life. And just so you know, the opinions shared in this podcast are my own and those of my guests, and they don't necessarily represent those of any organizations that I'm affiliated with. For more important disclosures, please go to our webpage at pearlplancom. Now let's get started. So today I was thinking about what I wanted to talk about, and I had a conversation with a financial planner friend recently who said I just don't want to answer any more questions about what's going to happen during the Trump presidency and I thought, wow, I kind of agree, because so many people equate who's president with what's going to happen financially for everyone, and what we find, based on studies, is different. And yet I thought that would be a great thing for us to talk about today. So it's a question that everyone's asking that a lot of personal financial planners who really are focused on your life, your goals and your needs tend to put by the wayside because it's really difficult to predict what may occur, and so often people are asking like what are investment returns going to be, what is economic growth going to be, etc. So we're going to unpack all of that today. We're going to talk about investing your money and the economy during Trump presidency part two, starting in 2024 or 2025, I should say. And I think it's the perfect topic as we anticipate the inauguration next week, and I'm excited to dive right in because there's actually a lot of meaty topics that we can cover based on this discussion.

Speaker 1:

So let's get started right off the bat, because I think people think like, depending on the party or their preferences, their partisan ideas, one president or another is going to be either make or break when it comes to the economy. What we've learned over time is it's very difficult to predict who's going to be a great economic president and who isn't, and so often the situations that create a great economy or a difficult economy are completely out of the control of people. I will use 9-11 is an example the housing crisis. You could look back to deregulation in the 80s and 90s and say that had a lot to do with it, not the George Bush presidency. Looking at COVID, you know out of people's control during the first Trump administration, and so I really want to remind you that, while we're going to be talking about what may occur during the next four years, predicting markets and predicting the future when it comes to the economy is really a no-win situation, at least in terms of probabilities of success and being statistically accurate. You know we just entered a new year where tens, if not hundreds, of Wall Street analysts are going to put out their prediction about what's going to happen this year, and they're all typically wrong. Last year, a lot of people thought it might be a difficult year, and it was pretty terrific, and so don't get in the game of forecasting when it comes to the economy.

Speaker 1:

What we do know is the economy seems to be working pretty well, it's been difficult to stifle inflation. A lot of people are focused on inflation and expecting prices to go back down to where they were before. That's not really the way inflation works. When you have less inflation, that just means prices aren't going up as quickly as they had been, but inflation seems to be persistent. Other persistent things include higher interest rates, and so that's definitely something that people are contending with. We've had mortgage rates inching up over the last few weeks and the market's kind of taking a little bit of a breather in December and a little bumpier into January. I don't think that has anything to do with who's in charge. We just had a terrific year when it came to stock market returns, as measured by the S&P 500. And so it's healthy to take a pause, take a breather when it comes to how things are, you know, going to kind of go in markets and investing. If things just go straight up, that's where bubbles get created. But all in all, then, we're not in a recession. We don't see a lot of indicators for recession, but it's also, again, very difficult to predict.

Speaker 1:

We do have some issues coming up that, even with full Republican majority control, may be difficult. So one of those issues is the debt ceiling is set to become an issue, and in the first Trump administration there were additions to debt and deficits even prior to COVID. And there's not a lot of appetite in some portions of the Republican Party as well, as there's just general opposition within the Democratic ranks. And the debt ceiling is not going to be an easy you know, kind of an easy A when it comes to getting things done. So expect brinkmanship, expect, you know, potential government shutdowns, expect perhaps more volatility, because this issue is going to be persistent. It's not like everybody's going to give the administration a blank check, although it is likely that there will be some sort of accord, some sort of deal, making some sort of ugly, you know, bill that works for everyone and no one all at the same time, with a lot of, you know, frustration along the way and sometimes that can create a little more dicey kind of vibes feels when it comes to the market. But you know, remember that investing and markets are a weighing machine in the long term, not a voting machine, and you don't want to be overly focused on the very short term periods of time. Okay, so tax policy has also been just something that everybody talked about all last year Because during the first Trump administration there was a really big tax bill called the Tax Cuts and Jobs Act and that lowered taxes for many Americans not everyone, it kind of depends but it was a bill that had somewhat lower tax brackets.

Speaker 1:

In many cases it also had more people that were likely to use the standard deduction. It became more difficult to itemize because state and local taxes could not be as big of a portion of your itemizing, which is a big deal for people that make quite a bit of money, which I think many of our listeners do a big deal for people on the coast in higher tax bracket states and so and there's a lot of other kind of things built into recent tax legislation, including that Tax Cuts and Jobs Act, like qualified business deductions, some more friendly you know kind of credits during the Trump and Biden administration During with COVID relief came more child tax credit, and so people really focused for much of the Biden administration on what's going to happen when the Tax Cuts and Jobs Act expires, because basically to make the numbers work for this to be kosher with you know kind of projections, the entire piece of legislation was set to sunset at the end of 2025. Now most people who follow along think you know, this is Trump's baby, this is his bill, and so President Trump is likely to get a coalition that can keep the tax regime similar, if not even a little bit friendlier. So one of the things that people think may come up is there was some political backlash for those state and local taxes not being able to be utilized if you itemize, and so some people think that there may be part of a compromise or changes on the bill would be that you could return to that the ability to write off your property taxes, your income taxes on the state level, etc. If you were over the threshold of standard deductions. As always, consult with your CPA. We love collaborating with CPAs as financial planners. It's that time of year, so I will just mention too if you plan on changing your CPAs or need to talk to a professional, get on the phone right now, because they are busy.

Speaker 1:

Things are changing all the time nowadays when it comes to tax. Things are changing all the time nowadays when it comes to tax. A lot of people want advice and there are fewer and fewer accountants that are willing to put up with the rigmarole of you know all that it takes to be very small segment of the US population today is that with the Tax Cuts and Jobs Act, the estate tax exemptions went through the roof. So when you pass away often the second person to die if you're in a couple, there used to be taxes when you just had a net worth of a million or $2 million and over the years that's crept up and with this legislation it's indexed to inflation and for a married couple, north of $20 million, well north of $20 million. For an individual, well north of $10 million. And so a lot of people were talking up that you're probably, if you're a millionaire but not a billionaire, going to need to be changing your estate plan because the estate taxes, like the threshold for you to be subject to estate taxes, might drop closer to I'm just using round numbers, but around $5 million for individuals and $10 million if you're married.

Speaker 1:

And again, there's a lot of consensus that it's unlikely that there would be a change lower when it comes to estate tax and in fact, it may even be easier to go higher. And so people that were, you know, kind of prognosticating hey, we're going to need to like, do a ton of really fancy things, gifting and getting money out of your estate, which, again, this typically applies to multimillionaires that kind of I won't say hysteria, but that alarming language has died down because it seems like there is information that would telegraph that it's likely, based on who's in charge, that the estate tax would remain higher. That said, there are so many interesting opportunities for people who are thoughtful about how they invest their money to save. We have indexing when it comes to inflation, indexing when it comes to what you can put into your retirement accounts. You can increase those every year. There's even more language that was put into Secure Act legislation, which was passed during the Biden administration. That is coming into play in these years, where there's even more you can put into certain retirement plans when you're certain ages, and so there's a lot to keep track of.

Speaker 1:

But I would emphasize and this isn't about Trump or, you know, democrats or anybody else but one thing that Washington seems to agree upon is A they're willing to make changes when it comes to investing in money for investors, but also they are certainly open to modifying and expanding opportunity sets for your ability to save in retirement. So more and more Americans have more and more options and plans. The opportunity set gets even bigger if you're a business owner and so you know. That is something that's interesting. Where there is a little bit of bipartisanship, yay. And it always keeps us on top of our game because there seems to have been a willingness to pass legislation when it comes to financials, that may help the average Joe and Joanne. That isn't necessarily occurring in a lot of other areas of government.

Speaker 1:

I would also mention, when it comes to that bipartisanship and cooperation, that there was a really interesting bill that was passed it has to do with Social Security right at the end of the Biden administration he actually signed it into law in January but that was another bipartisan bill that closed a loophole that excluded a lot of Americans who were government workers or state workers who did not contribute to Social Security, from being eligible for Social Security for other work on their record or on their spouse's record. On their record or on their spouse's record. This is an issue that's close to my heart because my mom was a teacher in Texas where she was eligible for the teacher's pension in Texas, but because the teacher's pension did not contribute to Social Security, her other earnings as a younger woman, also as a substitute teacher, when she wasn't under that pension system did not make her eligible for Social Security, even though she had an earnings record, and then, further, she would have been eligible for spousal Social Security. And there are many hundreds of thousands, if not millions, of Americans who are going to get a back check of Social Security going back to early 2024, back check of Social Security going back to early 2024, plus Social Security going forward based on their already based on their eligibility. They would have been eligible if they hadn't had this type of job, like a federal government worker, teachers in certain states and government workers in certain states. This has to do with the windfall elimination period and I use that both as something you should be aware of if you know someone who may be eligible, and Social Security age.

Speaker 1:

But I also refer to that because many people ask me what the heck is going to happen to Social Security. We've had anywhere from. Social Security should be really tackled as one of the entitlements. That is a problem with our deficit all the way over to during the campaign season, president Trump that said we may not tax Social Security at all, and for those of you who are concerned that we're going to be eliminating Social Security, I would say, the potential is that there may be changes over time, but they may apply to people further down the line than current retirees. That, at least, is what has happened in the past, and this bipartisan piece of legislation would seem to indicate that there's not. If anything, the benefits are becoming more, perhaps, fair, but also we're spending more money on more people, and that's a bipartisan effort, like I said, another area that people are really concerned about and look on both issues, both Social Security and what I'm talking about next, which is health care, I want to validate your concerns, because having uncertainty about how you're going to pay for something can be extraordinarily anxiety-inducing, it can bring stress, it can diminish your well-being.

Speaker 1:

But people are really concerned, especially if they want to be an early retiree, prior to Medicare age, about what could be happening when it comes to the Affordable Care Act, because, of course, many of us have pre-existing conditions that's just an element of being a certain age and some quite serious, like I know clients who are living with enduring health conditions that they'll live with the rest of their life that make it difficult to be insurable if there's underwriting for individual insurance policies, and so that is a really interesting area. I was talking to a Washington analyst at a conference I was at recently after the election. He had spent most of his career in kind of the traditional Republican Party but had good connections with the Trump administration, and I said my clients are concerned about ACA going away and not being able to afford health insurance because they can't get under, be underwritten because of current conditions and it makes it really difficult to be an early retiree, which many successful investors and savers would otherwise be able to do. And it was interesting because he didn't even understand the question about how far off this is from being something that is kind of on the table and never say never. One of the things that is more likely to be considered would be there is premium subsidies that are, in essence, given to those who are lower income brackets, who also don't have group health insurance plans. That part of the ACA may be more vulnerable, but he didn't even understand, like, hey, what happens if we can't be underwritten even or get insurance, even with preexisting conditions? And so, like I said, that's not to say that there's not vulnerability, but I thought it was encouraging for the many people who have those very valid concerns and keep in mind, when it comes to the subsidies, that many of those subsidies go to states that elected President Trump, so a lot of the government outlays are actually going back to red states. So that's a conundrum when it comes to, you know, budget busting, deficit fighting, you know the things that the Doge Commission is said to improve with government efficiency, when you really crunch the numbers, there's very, there's very. There can be hundreds of millions of dollars affected. But it's kind of a drop in the bucket because so much of the challenges we have involve defense, social Security and especially Medicare and Medicaid, which are just huge outlays that, at least in current regimes, are pretty much non-negotiable for the electorate.

Speaker 1:

Housing and real estate Now, this is interesting. First of all, keep in mind there may be an impact if the SALT deduction comes back into play in terms of housing prices, but I just think the trends in general have been we had a huge wave of kind of housing, a huge bump when it came to growth in the price of assets of housing, and whether this remains to be the case, it's a little bit, you know, like a more normal times, less exuberant market when it comes to most areas real estate, especially because of the persistence of high interest rates. It's one thing if you're talking to a real estate agent and mortgage broker in 2022 and say, talking to a real estate agent and mortgage broker in 2022 and say, and they were saying, hey, no big deal, I know it's painful to get this loan at 7%, but you can refi when rates go back down below 5%, but we just haven't seen any kind of windows where those rates are going back down, and so that's definitely a consideration of just like there's not a lot of legislation coming necessarily from Washington, but it may be kind of more normal times, less of a seller's market when it comes to real estate and more real costs of borrowing when it comes to mortgages. That is until whenever, the case may be, we have our next recession, which would likely be a time where the Federal Reserve would be likely to, you know, work on interest rates.

Speaker 1:

There's also, you know, just as a financial planning business owner as well as an entrepreneur is, one of the spotlights is going to be regulation, and so the administration is likely to be more circumstance, circumspect when it comes to regulation and more, a little more laissez-faire. You know, in the financial world that I live in, it can be very frustrating to live in a world where you have to be subject to rules of giant institutions, but it also helps to weed out bad actors, and I do think that you know that's a consideration in any area where things do get deregulated. But there's also legislation that needs to be on top of mind when it comes to entrepreneurs. The BOI reporting requirements that are applicable to many owners of businesses and LLCs and partnerships is something a reporting requirement. That's new, doesn't have to do with the Trump administration, but it's currently a requirement. So there's a lot of little things that are coming up over time. And then you know, we can have curveballs of higher prices with tariffs. It's to be seen what happens initially and over time, a tighter labor market, perhaps based on how immigration reform plays out and how the administration approaches removal of undocumented workers, and so all of these things could play into, you know, kind of the economic story over time when it comes to markets and, of course, people's experiences, lives. You know if you're in a sector that could be highly impacted by tariffs sitting here in Michigan, the auto sector is certainly one. It's a really big deal to see the potential coming for major changes in terms of how what you pay for the goods you access from outside of the US.

Speaker 1:

I want to get back, as we're kind of wrapping up the conversation. I hope you've enjoyed it. I know there's food for thought, but I also know that this is a discussion, you know, kind of touching that third rail of what's going to happen in an administration. You know, some people think that the next four years will be the best thing since life spread. Other people think they want a ticket to live somewhere else, and I think the reality of a financial planner is that we need to first focus on your personal goals and build portfolios and plans that are built for all varieties of periods of time.

Speaker 1:

But one of the things that I feel like we need to talk about more today is we have had a lights out start to the decade when it comes to how investments have gone starting in 2020. Of course, we had COVID, big disruptions and 2022 was definitely a throwaway year when it comes to returns, but things are going pretty darn well and even in difficult times, things have come back so strong and so quickly that it's kind of been a minute since we've really had a time where it's really difficult economically and to be an investor, and I just want to remind people that you should be building financial plans that have safety valves. You should have cash on hand. You should have an investment portfolio that's not only priced, you know, kind of like for the performance of lottery ticket type wins or returns. Bonds actually pay you a yield nowadays. So make sure you have, when appropriate, some bonds in your investment portfolio. They help to dampen volatility when stocks go down.

Speaker 1:

And so I just wanted to remind people because the last time we had persistent multi-year reasons, that time was different, and you need to remind yourself that the plans that you make, your plans for retirement, how much risk you're taking, how much you spend versus how much you save need to have consideration for all types of environment. And that is no prediction of what's going to happen next, because every year I wake up in January and roll the dice and seven out of 10 of those years, if not eight, typically in an average decade are going to be up years, and you cannot predict which ones are going to be down. Like I said, if you could, 2023 would have been a, or 2024 would have been a throwaway year after such a lights out year in 2023. But I do need you to consider the what ifs, just like I do on my personal balance sheet with my family and as a business owner. You need to know the what ifs. What are you exposed to if there were a prolonged recession? What if one or both of you and your family lost their job? Do you have proper plans?

Speaker 1:

And this has nothing to do with who's president right now, believe me. It just is something that I think, thematically, we should talk about, because it's been so long and it's felt so good to be an investor and a saver and it doesn't always feel good, although, I will tell you, the properly prepared people feel so much better and are so much more adequately prepared than those who kind of wing it. So with that, I hope that you've taken this food for thought. Talk to your CPAs, talk to your financial planner, talk to your friends and when they're, you know, either doomsday or I can't believe I'm going to be running all the way to the bank for the next four years. Talk about you know what's realistic and really how. You can't predict, but you can prepare and with that we'll keep you attuned as we approach, you know, whether it's debt ceilings or changes to tax legislation.

Speaker 1:

As always, there's so much to think about and talk about when it comes to financial planning, so we'll keep interesting and exciting episodes coming your way throughout the next four years. Thank you for listening to the Women's Money Wisdom Podcast. If you found value in this episode, the best way you can support the podcast is to forward an episode to a friend or leave a review. Go to pearlplancom and the podcast link to get all the resources and links mentioned.

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Melissa Joy, CFP

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