It’s a special election recap episode! What will a second Trump presidency mean for your money? Dave and Steve go over the Pros, the Cons, the Neo Cons… You name it, they will cover it on episode #115 of Plan For Life Now.
Steve:
Welcome to Plan for Life now episode 115. We are finally here it is November the 12th. Dave, I will say this has not been a great year for us. Sticking to our schedule, our self-imposed schedule of once a month podcasting.
Dave:
It hasn’t been good, but we certainly had the time to do it before the election. But then we said why would we record what for everybody would be an outdated podcast when the main story is the election. So we just pushed our schedule back, which was even though it hurts our scheduling, technically there’s nobody, we’re not scolded by you guys listening if we don’t come out exactly when we say we’re going to. So
Steve:
Yeah, but we thought things would be much more impactful knowing the results of the election versus simply speculating. So here we sit a week out. Obviously Trump claimed a pretty convincing victory. And let me start all of this by saying that in hindsight and often talk about psychological financial things, the way that we try to avoid losses, fear, loss aversion, hindsight bias is really strong. And you see this all the time in very small ways when the market goes up or down and people just say, well, obviously it went up or down because the treasury secretary sneezed or OPEC did this or blah, blah blah. So I’m trying to avoid some of this hindsight bias, but when you look at over the past couple of years how dissatisfied people have been with the economy, despite the fact that we’ve got record low unemployment and all time high stock prices, it shouldn’t be that much of a surprise that Trump was elected. You follow what I’m saying?
Dave:
I follow exactly what you’re saying. It shouldn’t be that much of a surprise because like James Carville said a long time ago, it’s the economy stupid. And even though you could look at these positive attributes of the economy, the people, the majority of the American people, that’s their number one ification. And yeah, so is what it is. But obviously if someone’s listening to this podcast, they’re wondering, Hey, what do you guys think about what’s going to happen now and how does this my money? So far it’s been good. I can tell you that so far it’s been pretty good. I just looked this morning before we did this. Hey, how much since election day, how much has the s and p been up about 5%
Speaker 4:
As
Dave:
Of the recording of this podcast?
Steve:
Yeah, no, I just, of course we’re going to get there of what it means for your money, but I just wanted to get that out of the way that this idea, in hindsight, gosh, it was so obvious that Trump was going to win, and it’s so obvious that X, Y, and Z trades would work really well because you certainly saw certain aspects, cryptocurrencies going crazy, you’ve seen anything that’s Trump linked, Trump done very, very well. And some of those other more conservative, more interest rate type of plays haven’t done quite as well there. You saw small cap stocks the day after the election rip up 6% there.
Dave:
Yeah, okay. But hindsight, yeah, now I see where you’re going. Okay. The hindsight did still take, this was a coin flip by all
Speaker 4:
Right,
Dave:
And even within the coin flip, and quite frankly the polls were right. They said it could go either way. Electoral college, as of today, when you actually look at the popular vote, it was close. I mean, really close Trump wins, but not like 50 to 45. It’s more like 50 to 49 when it’s all said and done or something like that. And yes, hindsight, oh yeah, it’s obvious crypto is going to explode because it was obvious Trump was going to win. No, it was obvious that Elon Musk was going to be somewhat in charge of everything. I don’t know. But it’s not saying that’s going to happen. But yes, you’re a hundred percent, 110% right about the hindsight bias,
Steve:
Right? It’s just so easy in the moment. That’s not the way it is. And hindsight looks easy. Okay? So let’s talk about what it actually means for your money and what, if anything, you should be doing. So first of all, if you’ve met with us in the past, I don’t know, what do you say, four or five months, we’ve been putting a chart in front of people that shows returns during different political parties. And the bottom line is that you can and have made money under Republicans or Democrats, the average return for the first year in office for any president, Republican or Democrat spend 9.88%, which is pretty darn close to the long-term average for stocks. So we always set the table with that, that a lot of people were going to be unhappy regardless of who got elected, but that should not drive your investment strategy.
Companies, corporations are very good at figuring out ways to make money and grow their earnings regardless of who’s in charge. So this is not a binary, Hey Trump’s, I’m getting in the market out of the market. I just don’t think that makes any sense. And historically that has not made any sense. Now that doesn’t mean that things haven’t potentially changed or that the outlook hasn’t potentially changed. And I think probably the biggest impact to our audience and to our clients is that tax cut and Jobs act we had long made the assumption, the tax cut and jobs act, some people just call it the Trump tax cuts. Those were put in place back in 2017, first time around with Trump, and those were permanent for corporations, but they were set to expire for individuals at the end of 2025. And that was long. The assumption that you know what, even if a Republican got in, they wouldn’t have control of all three branches or all three, you know what I mean? Congressional houses and the White House. And so that tax cut and job act will probably expire, and for most people that’ll mean an increase of three or 4% in your taxes. Now that does not appear to be the case. So I think you’ll see, I don’t know what form it’ll take, but I think you’ll see an extension of that or some period of time.
Dave:
Agree. I think the extension either be what it is now or what some would call better, but I have commentary, but if you’re going to lead into a discussion of Roths, I’ll save it for that.
Steve:
Well, I mean that is where I was going is we’ve been for many years basically recommending to clients saying, I think we should do some Roth conversions because we expect the tax rates will be higher in the future. And some of that it was specific to saying, okay, the tax cut and jobs act will expire. Some of it was much more broad, just this general idea that tax rates right now as they stand now are fairly historically low. And this whole idea that we run a deficit every year regardless of the party in charge, we have this huge national debt, eventually we’re going to have to pay for some of this. So tax rates going a little bit higher. Makes sense, and I’m going to stick with and standby that view. Even if the tax cut and jobs act gets extended, I still think it’s not a terrible idea to go ahead and convert.
We’re not talking about huge chunks for people, but a lot of the time we’ll be talking to somebody, they got $2 million, 100% of that money, or 95% of it is in a traditional IRA, and this means that it’s all going to be taxable coming out, and they’re going to have some really big required minimum distributions. And this idea of maybe we diversify here, even if tax rates don’t change, we just diversify when we’re paying taxes on things, how everything is taxed. I don’t think that’s a terrible idea. And a lot of the time what we’re talking about is $2 million portfolio and let’s go ahead and convert 20 or 30,000 each year, right? I mean, you’re talking one 2% of the portfolio. You’re not talking about, Hey, I’m going to convert everything. I don’t think that ever or often makes sense, but just converting little bits at a time there I think can make a lot of sense.
Dave:
A hundred percent agree. I was going to say, just stick with your Roth strategy and don’t change it because of this and the argument, I can make an argument that it’s more important than ever as you look at your Roth money for a lot of clients that we’re not using for a long time down the road based on whatever strategy you have. And if, let’s say again, what is it basically that Washington, I don’t care who’s the president, usually, that we’re kicking things down the road and keeping tax cuts in place, creating more deficit and quite frankly, creating potentially more of a strain on Medicare and social security that has to be funded, that will be funded in some way, shape or form down the road, well past now and then what’s going to happen eventually taxes will be higher. Something has to pay for stuff to keep the deficit from exploding. Now, way down the road, you’re very glad that you have a Roth account for all those reasons. So I look at it as, I’m not going to say more important than ever, but extremely important to just continue your normal Roth strategy through all this.
Steve:
Yeah, and I can’t remember, I think we were having this conversation with a client or potential client last week, and we were talking about how we’ll sometimes use distributions of a Roth to make sure that somebody doesn’t exceed that Medicare threshold or some of those thresholds where you get higher Medicare premiums there. And I think that’s important to mention that anytime we’re talking about doing Roth conversions or it could also be realizing capital gains. So that was something else that we had a client approach us a couple months ago before the election and she said, you know what? I’ve got these really big capital gains unrealized gains. I’m sort of worried about what’s going to happen and the capital gains tax rates might go up. And she said, do you think it’d be a bad idea to realize a couple hundred thousand dollars in gains this year?
Because I know I’m going to realize ’em eventually, and this year I know I couldn’t do it at 15% and she wound up doing that. But here were all the different things that we had to consider. First of all, was she going to push herself into a high enough tax bracket that capital gains or tax at 20% instead of 15, right? I think it’s 480,000 or something like that. It’s pretty high up there, but if you’re selling a big chunk of stock, it could happen. The second thing we had to look at was would her Medicare premiums be impacted? And that threshold is much lower. I mean if you’re single, that threshold for Medicare premiums should have had this in front of me, but it starts at around 105,000, something like that. So we just had to realize, okay, if we sell all this stock this year, two years from now, your Medicare premiums are going to be double or triple what they normally would be. That’s only a one time or one year thing. So just for 2026, she’ll have to pay twice what the normal Medicare premium. And then the last thing that we had to consider was that Medicare surcharge. Now this one’s not very common, it’s kind of confusing, but it’s basically for a single person, it’s the extent the lesser of that your investment income or your ordinary income exceeds $200,000. There’s a 3.8% tax on that. Now, if you didn’t catch all that, don’t worry about it. We’ll
Dave:
Deal with it.
Steve:
There is no quiz on this after the podcast.
Dave:
You don’t have to memorize it.
Steve:
My point in saying all of this stuff is that if you’re doing a Roth conversion, if you’re realizing some big income, there can be some second order impacts here that you’ve got to think about and be aware of. You don’t want to just say, yeah, taxes lower now, higher later, convert to Roth. You’ve got to consider all those other things that I listed out in there.
Dave:
And I would say my last commentary on the whole election would be because of the emotion around it. Even though we harp on this, and I think a lot of our clients get it, maybe you’re not our client and you’re listening to this, it is very dangerous to get into an emotional cycle. And this is the most emotional bottom line is if you’re worried that things are going to hell because of this election and you want to change your outlook on stocks, that is a very dangerous move. And I would argue, first of all, you’ve seen the stock market go up 5% and you also have a president who is like, no other president ever considers the stock market a scorecard. And you know what? If you have money in the stock market, maybe it’s not bad that the president considers that a scorecard and you got to be, it just doesn’t make sense.
And quite frankly, on the flip side, hey, the president looks at the, I’m using the exact same argument against myself. The president looks at the stock market as a scorecard. I’m going to put more money in stocks and while I’m at it, even though crypto’s at 90,000, how did that happen so quickly, I’m going to put more money in that because look at where that’s going. It’s bounding. In other words, I’m going to ride the emotional wave the opposite way. That is extremely dangerous because there are so many factors in the stock market that are out of the control of any president. Things as we’ve seen time and time and time again that just happen, that cause a crash. And quite frankly, pouring gasoline on the stock market in general can lead to things not so long from now having that market go down corrections that are normal and almost necessary. So my bottom line is to try to be a robot through all this stuff, try to be an unemotional robot and not get emotional either way.
Steve:
It’s not easy to do, but yeah, I mean it’s the right strategy is, and of course the argument against Trump would be, okay, yes, he’s pro-business, lower regulations, lower taxes, whatever feelings you have that’ll be positive for businesses. The anti-Trump argument would be the guys a loose cannon. I don’t know if you want to use that term. He does what he wants to do. And that of course could lead to something negative. And my answer to that would always come back to the fundamentals of any plan we put together is if the stock market crashes and burns tomorrow, I’m not talking it’s down two or 3%, I’m talking it’s down 20 or 30%, maybe not in a day, but in whatever period of time, do you have enough safe liquid assets to be able to get you through, not one or two or six months, but several years? And that’s always has to be the answer. What if Trump does something crazy and the market’s down and we go to war? Okay, you got to be able to ride things out for five years. Can you do that? Do you have enough money in the safer stuff? Yeah,
Dave:
You got to be. Absolutely. I mean, we’re a correction right now. To go down from 6,000 s and p to 5,000 is going to seem like, oh my god, what’s going on? S and p just hit a new high of 5,000. It feels like yesterday. It wasn’t yesterday, but you know what I mean. So this is where we are with all this stuff. Things are going to happen over the next four years. We know that for a fact. And to just do what you just said, always stick with the plan, always sort of plan for the worst when it comes to monthly income and not having to sell stocks when they’re low. That’s always the way to go. And greed. And greed feelings are usually not the way to go when it comes to this.
Steve:
That’s it. Yeah, I mean, the last couple of things I’d written here, I’ll just crowbar them in at the end. Social security payments going up 2.5% next year, so that’s okay. Medicare premiums going up 5.9%. I don’t know if you saw that just came out yesterday. I think
Dave:
I did not.
Steve:
So as has been the case recently, Medicare premiums going up faster than Social Security, but that impacts a lot of people out there.
Dave:
Right.
Steve:
Alright, let’s wrap things up right there, Dave. Good post-election wrap up and I think we’ll check in with everybody after Thanksgiving and before the end of the year.