“Time is your friend; impulse is your enemy.”
– John Bogle
Jump to:
The Strength of Today’s Economy
Turn Down the Noise
Why Panic Doesn’t Pay
The Swinging Pendulum of Politics
A Civics Refresher: Checks and Balances at Work
The Pace of Geopolitical Change
Post-Election: A Catalyst for Questions, Not a Cue to Panic
Long-Term Perspective and 2024 Highlights: A Snapshot of Market Resilience
Portfolio Rebalancing: Staying True to Your Allocation
Tax Policy: Extension of the 2017 Tax Act?
Capital Gains Conundrum: Strategies to Consider
Introduction: A Moment for Perspective
Since the beginning of the year, I have had several conversations with long-time clients who wonder if the frenetic activity of second Trump administration should prompt them to change their investment strategy. These concerns are understandable; political transitions often bring headlines predicting dramatic market moves.
But before anyone makes a drastic decision, I encourage a collective deep breath. Investors buy shares in companies, not in political parties. Those companies, from major multinationals to emerging tech innovators, aim to serve customers and grow profits regardless of who sits in the Oval Office.
Yes, the accelerated pace of change in Washington, D.C., can feel unsettling. Pundits amplify every policy announcement, fueling a sense of uncertainty. If the relentless media chatter is making you question the stability of your portfolio, it might be time to tune out the noise and refocus on what truly drives market returns.
Stay in your lane. This simple piece of advice can help you maintain both your long-term plan and your peace of mind, even as the second Trump administration dominates the headlines.
The Strength of Today’s Economy
Despite the swirling debates and political theatrics in Washington, recent data paints a picture of remarkable resilience in the broader economy:
- Robust Corporate Earnings
- In the fourth quarter of 2024, corporate profits increased by 16% year-over-year, signaling that businesses across sectors—financials, industrials, healthcare, and beyond—are finding ways to expand. Additionally, a report by Trading Economics showed that corporate profits in the U.S. reached $3.128.5 trillion in the third quarter of 2024, signaling continued financial success for businesses. Although there was a slight decrease of 0.4% from the previous period, the overall trend indicates strong corporate earnings, despite negative outlooks that several companies have given for the upcoming year.
- GDP Growth
- According to the U.S. Bureau of Economic Analysis (BEA), real gross domestic product (GDP) in the United States increased at an annual rate of 2.3% in the fourth quarter of 2024. This growth in GDP is indicative of a strong economy and increased economic activity across various sectors, including financials, industrials, healthcare, and more.
- Healthy Consumer Demand
- Unemployment remains near historic lows, and wages, while flattening in certain industries, continue to support spending on everything from travel to dining out.
- Market Adaptability
- The Federal Reserve’s decisions on interest rates can spark short-term volatility, but over the long run, companies adapt. Since 1990, the S&P 500 has averaged an annual correction of around -14%, yet it has consistently rebounded to higher levels over time.
A major driver behind this ongoing growth is what we often refer to as the “real economy.” There are approximately 160 million workers in the United States, along with another sixty million retirees, and all of them make financial decisions every single day—going on vacation, buying cars, and generally keeping the consumer economy humming. These daily spending choices shape the fundamental trajectory of markets far more than any policy debate on Capitol Hill or any talking head on cable news.
Speaking of cable news, it is best taken with a large grain of salt, as the entertainment it is, especially channels that feature nonstop market chatter. While some of the business reporting can be insightful, I have learned to tune out the constant parade of “stock experts.” Instead, I focus on long-term fundamentals, corporate earnings, and consumer behavior—factors that truly influence portfolio performance over time.
This combination of robust economic growth and stronger-than-expected corporate earnings serves as a potent catalyst for financial markets. However, it is important to note that most of this information has been priced in and we are still at higher price to earnings multiples. Trade policy, tax proposals, and regulatory shifts remain top of mind under the second Trump administration, but history suggests that a well-diversified portfolio—aligned with your long-term goals—can weather these policy ebbs and flows.
Turn Down the Noise
The temptation to react to every headline is strong, especially when news outlets thrive on delivering dramatic twists. But investors who stay glued to breaking news risk becoming reactionary rather than strategic.
Some clients have voiced concerns about specific issues, such as potential regulatory overhauls or shifting tax policies. It is important to remember that U.S. political power is dispersed among the Executive Branch, Congress, and the Judiciary. Even when one party controls multiple branches, sweeping changes are often watered down or delayed.
Investors should be aware that many headlines draw on bold predictions from high-profile figures yet often lack context or fail to materialize. For instance, while Senator Bernie Sanders has warned of job losses from AI, and Michael Burry (of The Big Short fame) and well-known investing guru Jeremy Grantham have repeatedly forecast economic crashes—potentially causing investors to miss several years of market gains—such dire outlooks have yet to fully unfold. Meanwhile, Bridgewater’s Ray Dalio’s concerns about U.S. public debt may carry merit but still involve future uncertainties.
In my opinion, these headlines may grab your attention short term. That is it. So moving forward, it is wise to balance them with a focus on market fundamentals, historical trends, and diversified strategies before making any investment decisions.
Key takeaway: Do not base a long-term plan subject to the whip saws of so-called expert predictions that the media loves to sensationalize. Economists have forecast nine out of the last five recessions, and the media have reported on them countless times, before and after they did not happen. Do not over-index on political events. An advisor can serve as a calming influence, preventing costly, emotion-driven moves spurred by the 24-hour news cycle.
- Resist 24/7 Market Chatter
- Even reputable financial networks can feed a frenzy with “expert” opinions that often contradict one another.
- Focus on Fundamentals
- Over the long term, corporate earnings, consumer behavior, and innovation drive market growth more than political headlines do.
- Don’t Get Swayed by White House Histrionics
- Every administration has its own style of governing, and the second Trump administration is no exception. Yet, the broader economic and corporate landscape typically moves forward regardless of policy turbulence.
Remember: No single politician or party can unilaterally reshape tax laws or government spending. Under the Constitution, Congress controls the purse strings, ensuring that any major tax or budget reform undergoes debate, negotiation, and revision.
Why Panic Doesn’t Pay
Some clients fear a “financial disaster” that could jeopardize their retirement. Yet history shows that markets have weathered wars, recessions, and political upheavals. Since 1926, U.S. stocks have delivered an average annual return of around 10%, and annual returns have been positive seventy-two times and negative 26 times. Adding in last year, we are at 73.74%, through both Democratic and Republican presidencies, according to Dimensional Fund Advisors. Even during challenging periods, disciplined investors are often rewarded for staying the course. Meanwhile, moving to cash after a market dip frequently means missing out on the subsequent recovery.
Consider these points:
- Retirement Spending and Market Returns
- If you rely on market gains to support your lifestyle, moving your portfolio entirely to cash can hasten a shortfall. Historically, diversified equities have offered the best chance to outpace inflation and meet long-term spending needs.
- Regime Change vs. Historical Trends
- New administrations bring new policies, but corporate America tends to adapt, innovate, and seek profitability regardless. Over the long haul, the market’s upward trajectory has persisted through countless leadership transitions.
- Entertainment vs. Reality
- Political debates often serve more to entertain than to inform prudent investment decisions. Meanwhile, hundreds of millions of consumers worldwide continue to spend, shaping markets far more profoundly than any short-term squabbling in D.C.
- Social Security Fairness Act
- Reforms such as reducing or eliminating the Windfall Elimination Provision (WEP) – which reduced the retirement or disability benefits of public employees who did not pay into Social Security – reflect how policy changes can take years to develop. This underscores that radical shifts rarely happen overnight, even under unified party control.
The Swinging Pendulum of Politics
If history is any guide, economic growth can occur under both Republican and Democratic administrations. Yes, the second Trump administration has dominated the news cycle with policy shifts and a disruptive style. But if you look at the data, markets have a long track record of rising over time.
Even in the face of major global events—like the COVID-19 pandemic—stocks eventually rebounded. By late March 2020, the MSCI All Country World IMI Index had fallen sharply, but it surged nearly 74% by the end of that year. (FN) The takeaway? Markets tend to adjust to new information quickly, and companies continue to innovate and pursue profits.
FN: https://www.msci.com/indexes/index/664204
A Civics Refresher: Checks and Balances at Work
One common misconception is that the president alone can overhaul the tax code or enact sweeping spending measures. In reality:
- Congress Must Approve
- Any major tax or budget reform requires congressional legislation.
- Most Laws Aren’t Retroactive
- Investors generally have time to plan and adjust.
- Power Is Diffuse
- Even when one party holds the House, Senate, and White House, internal disagreements and procedural hurdles often stall grand legislative ambitions.
These checks and balances help prevent extreme policy swings. Over time, political changes tend to moderate, and many bold proposals get delayed, revised, or reversed.
The Pace of Geopolitical Change
Rapid developments in trade, technology, and global relations can feel unsettling. But does it mean you should abandon a long-term strategy? Historically, the answer is usually “no.” Over the past century, U.S. markets have consistently trended upward, even as leaders tackled wars, diplomatic standoffs, and economic recessions.
Political headlines are just one piece of the puzzle. Oil prices, consumer sentiment, technological breakthroughs, and global market forces often have a far greater influence on corporate earnings and long-term market performance.
Post-Election: A Catalyst for Questions, Not a Cue to Panic
Now that the second Trump administration is in place, many wonder how new or extended policies might impact markets. But remember, you’re investing in the productivity and ingenuity of thousands of global companies, not just in one political figure.
- Market Resilience Across Administrations
- Political outcomes are just one variable affecting stocks and bonds. Historically, markets have shown a remarkable ability to adapt, regardless of who leads the Executive Branch.
- Avoiding Market Timing
- Attempting to jump in and out of the market based on policy predictions is risky. Missing even a few of the market’s best days can significantly reduce long-term returns.
- Stick to Your Plan
- If volatility worries you, consult your advisor. A robust financial plan accounts for market swings and is designed to keep you on track no matter the political climate.
Long-Term Perspective and 2024 Highlights: A Snapshot of Market Resilience
Those who have invested for 20+ years can recall significant events—from Y2K and 9/11 to the Global Financial Crisis of 2008–2009 and the COVID-19 Pandemic in 2020.
If you invested $100 in the S&P 500 at the beginning of 2000, you would have about $659.85 at the end of 2024, assuming you reinvested all dividends. This is a return on investment of 559.85%, or 7.84% per year*.
This lump-sum investment beats inflation during this period for an inflation-adjusted return of about 262.43% cumulatively, or 5.29% per year*.
If you used dollar-cost averaging (monthly) instead of a lump-sum investment, you’d have $717.01*.
(FN: * https://www.officialdata.org/us/stocks/s-p-500/2000?amount=100&endYear=2024)
Markets are astonishingly resilient over the long run, and it’s reasonable to expect that trend of innovation and growth to continue over the next 25 years as well.
Even in a period marked by uncertainty, 2024 turned out to be a solidly performing year for many asset classes:
- Gold: 23.3%
- US Large Cap Stocks: 21.5%
- US Small Cap Stocks: 9.8%
- Emerging Market Stocks: 8.2%
- Hi Yield US Bonds: 3.4%
- Cash (T-bill): 2.3%
- International Bonds: 0.8%
- REIT: 0.7%
- International Developing Stocks: 0.01%
- All US Bonds: -1.6%
(Source: https://themeasureofaplan.com/investment-returns-by-asset-class/)
These results remind us that markets can rise even when headlines suggest turmoil. A diversified portfolio of thousands of global equities and bonds generally helps smooth out short-term bumps.
Portfolio Rebalancing: Staying True to Your Allocation
As different market segments rise and fall, rebalancing ensures your portfolio remains aligned with your goals:
- Trim Winners, Reinforce Laggards
- Rebalancing typically involves selling positions that have grown overweight and buying areas that have underperformed.
- Tax Considerations
- For taxable accounts, capital gains can complicate rebalancing. Sometimes, though, taking profits in an upmarket is a smart move, especially if you can offset gains with future losses.
At Aurelius, rebalancing is a systematic process. We continuously monitor client portfolios to keep them in line with their target allocations, mindful of tax impacts and changing market conditions.
Tax Policy: Extension of the 2017 Tax Act?
With the second Trump administration now in office, many speculate that the 2017 Tax Act—originally set to expire in 2025—could be extended or even expanded. Control of Congress by the Republican Party fuels hopes for further tax cuts, along with potential tariffs and other reforms.
However, even when one party holds power, ambitious agendas often face hurdles. Our tax planning director, Greg Barishian, points out that no administration in recent memory has fully enacted its “wildest dreams.” We continue to monitor these developments to see how they might affect our clients.
Capital Gains Conundrum: Strategies to Consider
If political or market concerns prompt you to sell positions, capital gains taxes can come into play. A few strategies might help:
- 1031 Exchange
- Defer gains on investment real estate by reinvesting proceeds in a similar property within 180 days.
- Harvest Losses
- Offset realized gains with losses in other positions (mind the “wash sale” rule). You can also capture up to $3,000 of losses against ordinary income annually.
- Charitable Contributions
- Donating appreciated securities to qualified charities can reduce your taxable income while benefiting a cause you support.
- Charitable Remainder Trust (CRT)
- A “Substantial Sale CRT” allows you to spread gains over time and support a nonprofit of your choice.
Work with your advisor to determine the approach that best aligns with your broader financial plan.
Summary and Final Thoughts
Politics set the stage, but your portfolio shouldn’t be at the mercy of every new policy headline. Focus on what you can control: your asset allocation, spending habits, and tax strategies. Above all, keep perspective:
- We Invest in Markets and the Companies that make them up, Not Politicians
- Over time, corporate earnings and consumer spending matter more than who sits in the White House.
- Checks and Balances
- The U.S. system disperses power, making radical policy changes less likely than sensational headlines might suggest.
- Historical Resilience
- Markets have navigated wars, crises, and pandemics, and long-term investors often come out ahead.
- Lean on Professional Advice
- A solid plan is built to weather volatility, and a good advisor can help you avoid emotional decision-making.
“That’s one of the great perks about being a long-term investor who thinks in decades and not days.“
– David Booth
Even under the second Trump administration, markets are likely to keep climbing their “wall of worry.” The Aurelius team remains committed to helping you navigate these post-election shifts, so you can stay focused on what truly matters: reaching your long-term financial goals. If you have questions or want to revisit your allocation, don’t hesitate to get in touch.
During periods of market turmoil, many investors hesitate to review their portfolios. You may be pleasantly surprised by your portfolio’s performance—particularly due to strategic fixed income positions. We encourage you to stay engaged: log into our client portal (click the Orion tab at the bottom of our home page at https://aurelius.net) to see how you’re doing, or message/call us to check in. Our goal is to maintain a well-diversified, global market portfolio for every client. While the U.S. market, especially small caps, has faced recent challenges, our international and bond allocations have generally performed well. We remain committed to our core asset allocation principles, which have historically supported clients through times of uncertainty.
“The stock market is designed to transfer money from the Active to the Patient.”
– Warren Buffett
Disclosure
Aurelius Family Office, LLC (AFO) is registered as an investment adviser with the SEC and Noticed Filed with the state(s) where it transacts business, unless excluded or exempted from filing requirements. This communication is for information purposes only, and it is not intended to provide specific legal, tax, or other professional advice. Investments involve risk and unless otherwise stated, are not guaranteed. Although information has been obtained from sources deemed to be reliable, we make no guarantee as to the accuracy or completeness of this data. AFO shall not be liable for any errors or omissions, or for any actions taken in reliance thereon. Be sure to first consult with a qualified professional adviser before implementing any strategy discussed herein. Past performance is not indicative of future results.
