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The End of Trumponomics

Biden is officially the 46th President of the United States.

Hopefully President Biden isn’t smiling about raising taxes…

But, what does this mean for you and your finances? There are still quite a couple of things we don’t quite know about Biden’s future policies, but we do have a general idea of high priority items that might shift the economic outlook for the next couple of years.

With Congress being fully controlled by the democrats (and Kamala Harris being the tiebreaker in the senate), we do not expect Biden’s policies to be struck down.

In his first few days, he has already signed numerous executive orders. One of his top priorities is getting the Covid 19 spread under control. The economy is literally hinging on it because many equities are currently pricing in what the “fair book value” would be if the pandemic were gone. This means we can expect some serious volatility if Biden’s actions especially with the vaccine rollout do not go out as smoothly as possible. If you hold lots of high growth stocks which have been doing very well recently, it may be worth getting some put options as a hedge.

Biden has also made it a clear priority that he want to reduce climate change in the US and has already rejoined the Paris climate accord. He has also revoked access for the Keystone XL pipeline to be built and shows that he is serious about moving to renewables. With little pushback from congress, we can see huge infrastructure bills in renewable energy development being passed in the future to support this and investing in sustainable companies may be a good long term plan. We have seen many clean energy companies skyrocket up in value especially electric vehicles (looking at you Tesla). But there are many other ways to invest such as in the battery makers, solar producers, utility companies, etc. It might be a good idea to diversify as we don’t know exactly who will benefit the most but the clean energy industry as a whole should see a boost to the bottom line.

With that being said, we do not think that legacy energy producers such as Exxon or Shell in the gas industry should be disregarded. Clean energy may be the future, but the transition will not happen overnight. The market has been really poor at assessing value recently and many gas companies are trading near or below book value which makes them solid short term value plays with healthy dividends.

In addition, Biden is mulling cutting student debt and many other progressive policies that Democratic Party has been trying to push for years. Many of these projects are very expensive and will add greatly to the US deficit. So, there may be some increases in taxes in the future and as such we recommend using as many tax sheltered accounts that you have available such as the Roth IRA and Roth 401ks among others.

What does this ultimately mean for you?

If you’re still decades away from retirement, all these executive actions that Biden is currently signing should not deter your long term investment strategy. President’s are only in office for a finite amount of time with term limits, but the market is a long term game. Look at companies with strong fundamentals and stick with index funds that offer low expense ratios and diversify your risk. In addition, we believe the progressive programs that are going to be pushed will lead to higher taxes down the road and now is the time to be putting in as much as you can into tax sheltered accounts.

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