We are in the thick of another consequential election season where the volume of news reaches a fever pitch of polling data, ubiquitous pundits, and every speech or tweet instantaneously communicated to way too many screens. Much like the election of 2020, the 24-hour news cycle needs to stay relevant to gain and retain eyeballs as both sides of the aisle are vehemently shouting this election is, by far, the most consequential of our nation’s 248-year history. In times like these, it’s best to take a step back, a deep breath, and perhaps take in some historical perspective. Consider first, what are the real-world implications of the election results and second, what can we do about them?
First, some history: no two elections are exactly alike, and as Mark Twain reportedly said, “History doesn’t repeat itself, but it rhymes.” So, we’ve been here before, and in fact, one could argue the existential nature of this election pales in comparison to more consequential elections in our nation’s past. Consider the election of 1796, where it was not assured the electoral system would work as designed, and a fragile union could crumble when George Washington abdicated as commander-in-chief. Instead, John Adams was elected without much fanfare, and the nation moved forward. Or 1828 when, for the first time, a “Westerner” from Tennessee (Andrew Jackson) finally broke through to win the White House, demonstrating the power of the general electorate to push back on corruption and collusion that had been undermining the election process to elect a “common man.” Then, of course, in 1860, when Abraham Lincoln was elected while the then-contentious issue of slavery drove a wedge through our country, resulting in secession and the bloody Civil War. Clearly, we live in a different world compared to 150 years ago – one our forefathers couldn’t have fathomed. But the point is, a nation much more fragile than ours today found its footing, endured the tumult, and flourished.
So, while this brief walk through history might be mildly interesting, the real question impacting our families’ wealth plans today is this: What are the key policy points to evaluate, and what can we do about them? First and most importantly, ignore most of the noise.
Debunking Near-Term Volatility
With so much airtime and screen time to fill, broadcasters are starved for content and relevancy, and the business model feeds the need to continuously up the ante on the shrill nature of the message. For consumers, it can be easy to fall victim to the impression that markets are always more volatile around elections, and the best move is to make aggressive shifts toward de-risking a portfolio before sharp losses ensue. However, as our most recent blog from our Chief Investment Officer, Charles Rinehart, pointed out last month, attempts to front-run volatility with timing in and out of markets is most likely a detriment to wealth building.
The clear conclusion from Charles’ work is this: if a person only invested based on whether or not their preferred political party occupied the White House, they would have robbed themselves and their families’ of the resources to provide college educations for their children and grandchildren, a comfortable retirement, or any number of life’s goals.
What We’re Watching
While these numbers, facts, and history lessons may provide some comfort, we view them as guides, not rules, for the future. In working with our clients, we still believe it’s critically important to analyze the potential impact of new policies and how they could affect investment portfolios and our wealth planning strategies. Accordingly, we remain steadfast in our commitment to analyzing today’s crosscurrents with the direct impact on families’ earning power and the earning power of corporations, which ultimately drive security prices. These include:
- Potential changes to income, corporate, and estate tax law, most notably the potential sunsetting of the Tax Cuts and Jobs Act at the end of 2025.
- The degree and pace of interest rate moves the Federal Reserve will undertake since they clearly signaled in the most recent public comments that rates are biased lower in the near term.
- The latitude congress and the future president will have in passing their agenda depending on whether they share the same party affiliation and can actually pass and sign bills into laws.
- What underfunded entitlements (Social Security, Medicare, Medicaid) will be addressed with potential changes in benefits or qualifications for current and, more likely, future retirees, and how these “promises” to retirees could drive tax and spending policies?
- How the geopolitical landscape is continuously shifting with respect to explicit military conflicts, implicit economic conflicts, trade policy, “reshoring,” and uncertain alliances.
What Can Be Done About It
Even with those questions, we still feel strongly that grinding our teeth about whether “our candidate” won is an exercise in futility. The reality is this: by far, the most important people impacting a family’s wealth plan are not politicians nor a political party, but an individual and their actions. And the list of what can actually be done has not changed nor will it change, regardless of who is elected. These foundational principles include:
- Monitor and manage your living expenses to ensure an accurate and realistic cash flow plan is in place.
- Ensure your portfolio has a balanced risk versus return profile, which includes ample secured assets earmarked for near-term expenses, emergencies, stability, and growth.
- As markets move, ensure the portfolio allocation aligns with the risk-adjusted wealth plan through portfolio monitoring and rebalancing.
- Minimize tax liabilities (current and future) by all means legally available for the current year and especially for retirement years, when RMDs and Social Security could drive income tax rates to the same level (or higher) as working years.
- Ensure your family is properly protected and insured for life, health, earning power, and personal property.
- Organize and optimize your estate plan to ensure assets pass in a way that aligns with your values and ensure estate taxes are avoided or legally reduced.
- Find ways to add value to your employer or business to maximize your earning power.
Of course, we believe this list is just the starting point, and we’re grateful to serve our clients in these matters. Even if professional advice is not part of a family’s plan, the concepts still apply.
Bottom line
We can lose a lot of sleep worrying about whether Donald Trump or Kamala Harris will destroy the country. But what is directly impactful for each and every one of us is to focus on and address those factors that directly impact the family wealth plan. So, get out and vote, then turn your attention back to controlling what can actually be controlled.
Disclaimer: Johnson Investment Counsel cannot promise future results. Any expectations presented here should not be taken as any guarantee or other assurance as to future results. Our opinions are a reflection of our best judgment at the time this material was created, and we disclaim any obligation to update or alter forward-looking statements as a result of new information, future events or otherwise.