With the election of a new president come partisan reactions. Some who didn’t support President Joe Biden have expressed fear about the effects of a more liberal administration on the economy.
In short: Will a Biden administration make your retirement savings disappear?
Not likely, according to some DeLand-area financial advisers. Whatever actions the Biden administration ends up taking, they may not have as much effect on your personal finances as, say, simply monitoring your own day-to-day expenses.
“Usually, a change in president does not have a large impact on the economy; that’s because the president’s power over the economy, in general, is overrated,” Dr. Alan Green of Stetson University said.
Green is an associate professor and chair of economics. He recognized there may be fear about changes to the economy. For the average West Volusian, Green said, those fears are unlikely to come true.
“Regardless of the political climate, we’ve had economic growth,” said Sean Tamm, a DeLand-based financial adviser with Edward Jones Investments. “Both growths as well as declines are caused by greater forces outside of a political environment.”
While trying to predict different economic factors can be interesting, Tamm said, it’s more important to have a long-term plan.
Tamm recommended the following thought exercise: Ask yourself, what has caused the greatest change in your life over the past three decades? Likely, he said, advances in technology and innovations by some of the world’s largest corporations have sparked far more change — for the individual — than the actions of whoever was president.
“As a financial adviser, it’s hard to predict what the economy is going to do. What the heck do you do about it? That’s the more important question,” he said. “What’s more important is you have your house in order.”
For some, following the stock market and the White House’s proposed plans is practically a full-time job. DeLand-based financial adviser Tom Robertson said, for most people, while it can be interesting to follow the ebb and flow of the Dow Jones Industrial Average or decisions from Capitol Hill, the important thing is paying attention to your own expenses.
“People view the economy based on the stock market,” he said. “It will rhyme a little with the economy, but the economy and the markets are divergent.”
According to Robertson, unless you have beaucoup bucks tied up in assets, there are far more important things to be worrying about.
“From the client with $15 million to someone making $30,000, we go through the same exercises, they just have more commas and zeros,” Robertson said. “To me, the core of financial planning is cash flow.”
More than anything, Robertson said, the key to staying ahead of financial problems is awareness.
“People need to have intimate knowledge of what’s coming in and what’s going out — to approach their finances how a business does. It gives you a chance to understand your own economics, and it should have logical effects on your behavior,” Robertson said. “Take the time to go through knowing what’s coming out of taxes, health care, all the way down to entertainment. It’s not fun, but it’s eye-opening. That’s what you have control of.”
The stock market
The stock market reflects the market value of companies that publicly list their stock; if it is booming, that is great, if you own stock. For most people, it has little impact on day-to-day life.
If you have a job with benefits, then you likely have a retirement plan — a 401K or equivalent — that includes investments in stocks. But those plans, by design, are investing for the long term, so you shouldn’t worry with day-to-day fluctuations.
The economy as a whole reflects basically all the work that anybody does in the whole country. If the president says it is booming, that should mean that unemployment is low, new opportunities are available, and the near horizon looks good.
The U.S. economy is massive, however, so there is plenty of variation regionally and locally. The economy can be booming overall, and some industries and/or localities can still be struggling economically.
— Stetson University associate professor and economics Chair Dr. Alan Green
Federal to local
Before the election, Biden said he planned to raise taxes on individuals making more than $400,000 a year. While it is unclear whether this will come to pass, people making less than $400,000 would be largely unaffected.
Some changes will begin to make their way to the grassroots in 2025, when changes made by President Donald Trump’s Tax Cuts and Jobs Act of 2017 begin to expire. Those changes, such as modified tax brackets for personal income taxes, were set to expire from the outset, Tamm said.
Whether you like the new president or not, the Biden Cabinet is far from radical.
He is surrounding himself with “a very talented, skillful economic advisory team,” Robertson said. He specifically noted his optimism for the new secretary of the treasury, Janet Yellen, who formerly chaired the Federal Reserve.
Donna Jean Flood, a DeLand-based Edward Jones financial adviser, noted that — regardless of what the new president has signaled — “the market is forward-looking.”
“It has already looked at who is going to be elected, who got elected, and it’s already reacted to that quite some time ago,” Flood said of the stock market. “It is always better to follow time-tested principles and not let the election or political decisions influence your long-term strategy. Market forces are more powerful than political forces over time.”
While the president’s proposed tax plan may not affect many West Volusians, one change could: the rising minimum wage.
The Florida minimum wage will have its first increase in September, when it will jump $1.35, from $8.65 to $10 per hour. From there, the state minimum wage will continue to increase by $1 annually until it caps at $15 in 2026.
There was plenty of concern surrounding the state constitutional amendment before the Nov. 3 general election, but 60.82 percent of voters statewide approved of the increases.
Green of Stetson said he does not foresee any large economic fallout from the minimum-wage increase.
“September should actually time out pretty well,” Green said. “Hopefully we’ll be at the start of a robust recovery then that will ease the transition.”
Florida has a separate minimum wage from the federal minimum wage, but not all states do. In 2004, voters adopted an amendment to the Florida Constitution granting Floridians a $6.15 minimum wage. At the time, this was $1 higher than the federal minimum wage of $5.15.
Over time, both the state and federal minimum wage have increased. As of January 2021, the federal minimum wage is $7.25, while Florida’s state minimum wage is $8.65.
On Sept. 30, Florida’s minimum wage will become $10, because of voters’ approval of another constitutional amendment in November. For years, activists and various politicians have rallied for a higher minimum wage. In the 2020 general election, Floridians approved the amendment that raises the minimum wage $1 per year, after Sept. 30, to $15 per hour by 2026.
— Noah Hertz
The bottom dollar
Money matters can feel so much greater than any one of us. But even when things go bad on a macroscopic scale, they rebound.
“The four most famous words in finance are ‘this time it’s different,’” Tamm said. “It’s important to remember the market will decline, but the market has never gone down and stayed down. While we will experience volatility in the coming years, this time isn’t different.”
Whether it’s a financial adviser or a levelheaded friend, getting a third party to help you through difficult decisions can make a world of difference.
“During times like the year we’ve had, it’s important that you’re making long-term decisions not based on emotion,” Tamm said.
For Flood, the strength of the American free-market economy comes from its ability to always rebound and continue working.
“The most beautiful thing about the U.S. is that one of the strengths of our political system is that the pendulum tends to swing back toward the center over time,” she said.
Ultimately, the chances of a Biden administration completely upending the status quo are small, Robertson noted, despite the apparent wide gulf between political extremes, with fear and passion on both ends.
“It’s just tribalism,” he said.
A more productive use of our time, Robertson suggested, would be figuring out how to combat the many problems we face in the coming years — beating COVID-19, outrunning climate change, and figuring out how to deal with insurmountable amounts of debt.
“If we can remove the tribalism, we could get some stuff done,” Robertson said.