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Create Account to manage your assets on the Jefferson National Account Management website.

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Post-Election Results and Taxes: How They'll Impact Investors

 

It’s evident the 2016 presidential election will be regarded as both unprecedented and unexpected for most American citizens. Advisors and investors are no exception. In May, Jefferson National announced election-related findings as part of its 2016 Advisor Authority Study, including a survey of 683 RIAs and fee-based advisors and 733 individual investors, conducted by Harris Poll. In the study, a plurality of advisors (40%) and investors (39%) said they would be more likely to vote Republican. Yet, when asked which political party more likely would be elected, a plurality of advisors (41%) and investors (40%) predicted a Democrat would win.

 

Party Affiliation: Voter Preferences vs. Presidential Winner Predictions

View the full infographic

But unlike the divisive political discourse we’ve witnessed throughout this election year—advisors and investors are in agreement on several key issues related to the election. When asked which trends would impact their investing approach this year, both advisors and investors rated “Presidential elections” in their top three. In addition, “Presidential elections” were also rated one of the top three drivers of volatility. 

 

Election Impact: Advisor vs. Investor Responses

When asked to select the top three trends that will impact their approach to investing, Registered Investment Advisors (RIAs) and fee-based advisors rated ongoing volatility first (34%), the U.S. Fed policy second (32%), and Presidential elections tied for third with low returns on investments (both at 25%). Investors rated low returns on investments first (31%), the Presidential election second (30%), and U.S. Fed policy tied for third with domestic economic performance (both at 25%). And when asked to select the top three issues that are likely to cause market volatility, advisors rated presidential elections third (30%) while investors rated presidential elections first (36%).

View the full infographic

 

Election Impact on Taxes: Donald Trump’s Tax Plan

While tax policy is not as “in-your-face” as this year’s presidential election has been, soon these plans will impact what’s “in-your-wallet.” President-elect Donald Trump proposes to cut individual and corporate income taxes across the board.  The flagship of his plan is a major revision of the federal tax code: A reduction of business taxes and a sequence of changes to reduce income taxes for most American households.

Overall, according to the Tax Policy Center, the plan would cut taxes by an average of about $5,100, or about 7% of after-tax income. However, the highest-income households would see the largest reductions, in dollar and percentage terms. Those with incomes over $3.7 million (in 2015 dollars) would experience an average tax cut of more than $1.3 million in 2017, nearly 19% of after-tax income. Middle-income households would receive an average tax cut of $2,700, or 4.9% of after-tax income.

The significant marginal tax rate cuts are predicted to improve incentives to work, save, and invest if interest rates do not change. However, unless these tax cuts are accompanied by very large federal spending cuts, this could increase the national debt and offset some or all of the tax cuts’ incentive effects. The president-elect’s plan is forecast to reduce federal revenues by an estimated $9.5 trillion over the next decade, according to the Tax Policy Center.

 

Tax-Smart Investing: Always a Priority

Despite the proposed cuts, tax-smart investing remains a priority for investors. Investing in tax-deferred vehicles will continue to be an imperative to mitigate taxes and increase returns without increasing risk. Investors should still consider contributing to a broader array of tax-deferred investments, including IRAs, 401(k) plans, employee stock ownership plans and low-cost annuities such as Investment-Only VAs. Tax-deferral can help control how much is paid in taxes—and when those taxes are paid. It not only helps investors avoid cash outflows for taxes in the near term, but it can also help investors generate higher returns over the long term, as assets remain invested and those earnings can benefit from more compounded growth over time. As Taylor Tepper, staff writer at MONEY puts it, “[The President] will last only, at most, eight years. You, on the other hand, are investing for the rest of your life.” Why not maximize it?

 

- Jefferson National CEO, Mitchell H. Caplan
 


 

Methodology

This survey was conducted online within the United States by Harris Poll on behalf of Jefferson National from March 3 - 29, 2016 Among the 683 Financial Advisors, there were 440 Independent Registered Investment Advisors and 243 Broker/Dealers. Among the 733 Investors, there were 167 Mass Affluent, 184 Emerging High Net Worth, 199 High Net Worth and 183 Ultra High Net Worth.

Respondents for this survey were selected from among those who have agreed to participate in Harris Poll surveys. Because the sample is based on those who were invited to participate in the Harris Poll online research panel, no estimates of theoretical sampling error can be calculated. A complete survey method, including weighting variables, is available upon request.

Reading the Data in this Report

  • Responses may not add up to 100% due to weighting, computer rounding, or the acceptance of multiple responses.
  • An asterisk (*) denotes a value less than one percent but greater than zero.
  • A dash (-) denotes a value of zero.