Early this morning, we joined the ranks of Americans who were surprised — to say the least — by Donald Trump’s victory over Hillary Clinton in the presidential election. Whether you love or hate the president-elect, it’s impossible to ignore the fact that his proposals, such as they exist, will have substantial ramifications on the U.S. economy both in the short and long term.
If you’re wondering what this stunning development portends for your money, we’ve got some advice on managing your finances in the era of President-elect Trump. Here are five tips from our team:
- Don’t make any sudden moves
American financial markets went on a wild ride in after-hours trading last night, with Dow Jones futures falling more than 800 points as Clinton’s softness in key swing states became apparent. The global markets echoed this uncertainty, with key Asian benchmarks seesawing as traders awoke to a Trump win. It’s clear from the reaction that investors around the world expected a Clinton victory, and if there’s one thing the markets hate, it’s unpredictability.
For the moment, U.S. equities seem to have bounced back close to pre-election levels, but one thing is clear: the markets will be incredibly volatile over the next few months. This is because we don’t know which of President-elect Trump’s many campaign promises will actually be enacted; some of them are pro-growth, like infrastructure spending, and some could be disastrous, like imposing broad trade tariffs. We also don’t know much about the executive team he will assemble, notably the Secretary of the Treasury, who will play a key role in defining the Trump administration’s fiscal policy.
Timing the market is incredibly difficult, even for professionals. We suggest that either selling or buying assets on the basis of the immediate election result is premature. Neither panic nor elation is a good strategy. You should sit out the short-term madness and stick to your long-term investment plan.
- Interest rates will probably stay low
Given the volatility that has only just begun to rear its head, the interest rate rise which the Fed had teased for December will probably not happen. The next opportunity for rates to rise is March 2017. That said, if the market settles, the Fed may still push rates up a quarter of a percent as planned. For now, we’d say that if the prospect of rising interest rates was a factor spurring any personal financial decisions, like refinancing your mortgage, you can rest easy and take your time for now.
- Explore your options for health insurance
It’s unclear whether President Trump will carry out his long-voiced threat to dismantle Obamacare and replace it with “something way better,” but with a Republican Senate and House on his side, as well as the looming prospect of a conservative Supreme Court, a successful challenge to the Affordable Care Act is well within the realm of plausibility. If you are currently on an Obamacare plan, start looking for alternatives: through your spouse or your parents if you’re under 26, or by placing a premium on employer benefits in the job hunt.
If you have an HSA or other medical savings account, it might be wise to max out your contribution to ensure sure your health needs are covered.
- Personal taxes are likely to go down
With full Republican control of Congress, President Trump will likely push through a package of across-the-board tax cuts. This could be detrimental to the economy in the long-term as the deficit increases and our national debt continues to mount, but in the short-term, it will increase household consumption and create growth.
Another likely change is the repeal of the estate tax: under the current laws, you pay 40% on the excess value of any estate worth more than $5.45 million.
Finally, with corporate taxes being reduced to a flat 15% for all businesses under Trump’s tax plan — including sole proprietorships and S Corporations — independent contractors are going to be in great shape, tax-wise. Top wage earners could go from a marginal tax rate of close to 40% under the current tax scheme to paying a mere 15% as contractors under the Trump tax plan. This could have a tremendous impact on the “gig economy,” making it a far more appealing proposition to work for Uber or Instacart.
- We repeat: volatility is the new normal
This is probably not the best time to take any major risks with your finances. Again, we’re not sure about the ultimate financial implications of a Trump presidency, and this is precisely why it’s a good idea to batten down the hatches. It would be wise to put off major discretionary purchases for the time being. Make sure your emergency fund is fully stocked and cut down on unnecessary consumption.
These basic rules of personal finance apply even more strongly when unpredictability reigns; a little prudence will ensure that you make it through the next four years in great shape, no matter what President Trump has in store.