Yellowstone Financial, Inc.

With Trump Elected, Have Your Finances Changed?

Most Boulder County residents, who voted for Clinton by more than a 3 to 1 margin, faced an unpleasant shock in last week’s presidential election.  Moreover, the outcome was unexpected as almost all polls showed Trump firmly in second place on the eve of the election.

As the results of the election became clear, world stocks recoiled with the Japanese market down over 5 percent the following day.  We braced ourselves for a US market crash as S&P 500 futures plunged the night after the election.   But in an unexpected twist, that pessimism faded as the markets opened last Wednesday as the reaction to the election was muted.

So now we’re left to contemplate our financial future with Trump as president.  If your candidate lost last Tuesday, you may feel deeply pessimistic about the future.  You may conflate that pessimism with our country’s economic outlook.

The fact is that we know little about our nation’s future economic policy under a Trump Administration.  He has been a strong promoter of reducing individual and corporate income taxes, increasing government spending, and putting in place greater barriers to trade.

Yet his political leanings have been labile, and his ability to implement his policies with a House led by a Speaker who did not support him and a Senate minority with filibuster power at its disposal is open to question. When serious tax and spending proposals are put forward, we’ll consider them in this column.

As much as last week’s events bring national news to the forefront, we should pause to focus on what is under your control and what isn’t.  The truth is that much of your financial future remains in your hands.

You’re in control of how much you spend and how much you save.  You’re in control of whether you begin your savings younger or older in life.  You’re in control of whether you take steps that would protect your family’s financial future in case something happened to you.  You’re in control of seeking out better opportunities that could improve your pay and your career satisfaction.  You’re in control of putting an estate plan in place that makes sure your affairs are in order in case of your passing or incompetency.

While you’re waiting for the economic implications of a Trump term to become evident, inventory the steps you have taken to improve your own financial health.  If you’re thinking about liquidating your stock investments, remember that those funds are not a vote of confidence on the success of Trump but rather an affirmation that capitalism works.  Your stock holdings represent little slices of ownership in companies all around the world.  As those companies earn money and grow their earnings, your investments will increase in value over time.

For as long that we have measured stock market returns, owners (shareholders) have done better over the long haul than lenders (bondholders).  This is the equity premium, which is a bargain that we make over time that the risk of being a shareholder will be repaid in the form of higher returns over time.  This phenomenon has endured through good times and bad.

As a reaffirming exercise think of the worst President (from your perspective) that we have had in the last century.  Then look up the S&P 500 stock index at a period during that time.  Morningstar can show you historical prices as does Yale Professor Robert Shiller’s web site.

Let’s say Nixon’s resignation in August 1974 was a low point for you.  Imagine the following 25 years to mimic a reasonable length of retirement.  The S&P 500 index closed at the end of that month at 76.  Twenty-five years later in 1999 the same index was at 1,327 (and this week is over 2,100).  That dramatic difference actually understates the positive performance as it doesn’t include dividends, which were over 4 percent per year in 1974.

I don’t mean to minimize the dread that Clinton voters feel right now about the impact of a Trump presidency.  But it’s critical to remember that the most important steps to a sound financial future rest firmly in your control, and that stock markets over time have a high likelihood of appreciation regardless of your opinion of the president.