First, there’s reviewing track record. According to the Associated Press, Trump’s earlier administration saw average growth, more government debt, and fewer jobs. His impact on inflation during his presidency was minimal—he had inherited a recovering economy, with the pandemic positively influencing mortgage rates and gas prices. His former presidency also saw a booming stock market.
However, as with the financial markets, past performance does not indicate future risk or rewards.
In this article, I investigated core campaign promises and supported economic frameworks. From there, I looked at how these changes would likely affect investments and your portfolio.
There were three economic pillars to Trump’s campaign: Tariffs, tax cuts, and deportations. Let’s review what the President-elect considers a priority—and what those policies could mean for the economy.
One of Trump’s campaign promises involved implementing tariffs, a tax imposed on imports from a foreign country. This economic strategy is used to make a political statement, raise revenues, or protect domestic industries.
However, adding tariffs in the modern, globalized economy is a complex process. With so many industries dependent on foreign suppliers and manufacturers, tariffs can have a negative effect on domestic companies. This is because operating costs may increase, thus raising prices for the consumer. With less competition in the market, there is also less incentive for companies to innovate and keep prices low.
Trump also stated during his campaign that he plans to extend the 2017 Tax Cuts and Jobs Act (TCJA). This would prolong the increased estate tax exemption, additional standard deductions, and lower marginal income tax rates.
He also has spoken about other potential tax changes, such as:
While these may provide some positive short-term reductions for retirees and those in high-income brackets, there are concerns that removing taxes, especially from Social Security, may cut the program's benefits by 30% by 2031.
To discuss the economy in full, we have to discuss immigration. Trump’s plans for mass deportations and detentions would directly affect a few different parts of the economy. For example, cutting back on immigration, illegal and legal, would reduce company access to affordable labor and state sales tax income. When combined with tariffs, which will rock the global economy, it’s possible that deportations will drive inflation, and consumers will find less bang for their buck.
It’s possible that we’ll see more chaos in the stock market.
Despite campaign denials around supporting Project 2025, Trump recently appointed Project 2025 architect Russ Vought to lead the budget office. While it’s impossible to predict every policy change, some of the Project 2025 initiatives include significant economic shifts:
The project's long-reaching “wish list” goals also suggest Abolishing the Federal Reserve and shifting to a gold standard of currency.
A common thread woven through all of these administrative shifts is the reduction of transparency or oversight. Regardless of the politics, less information and objective reporting results in less certainty and stability. This would dramatically affect an investor or advisor’s ability to properly gauge risk or align investments with their values.
We only began shifting client assets from short-term CDs into various other investments. However, these new economic policies, if enacted, will dramatically affect the economy.
Post-election, many small stocks and financial ETFs saw a small boost as investors celebrated potential corporate tax breaks and deregulation. The long-term effects, however, are yet to be clear, and economic experts see these policies as a threat.
For example, 16 Nobel Prize-winning economists signed a letter stating that, if enacted, these policies would worsen inflation. The Peterson Institute for International Economics (PIIE) predicts that these policies, especially deportations, and tariffs, could cause inflation to jump between 6% and 9.3%.
If true, this translates to less stability in your portfolio. Individual stocks, which are already only loosely linked with performance, will release less transparent and detailed reports. This low transparency will transfer to grouped assets like ETFs and index funds.
FDIC-insured assets may also become more risky if the agency is abolished, as depositors would no longer have insurance on their investments. This means that CDs, bank accounts, and other fixed-income assets will lose stability.
While it’s impossible to say for sure the exact consequences of these policies, it’s clear that massive changes will result in increased disruption.
At the end of the day, investment and financial planning are all about risk. Risk increases during times of great change and uncertainty—and this is bound to be a time of change. Whether you agree with these policies or not is irrelevant to your portfolio.
For those nearing retirement, it will become increasingly important to have an emergency fund and liquid assets. It may also be an important time to hedge against inflation and focus on targeted investments. It’s also important to keep a longer horizon for your financial stability.
Policies rarely have an immediate effect. It can take time to see the results of new policy changes, which means you may not see the impact of these shifts until a decade down the road.
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