How the 2020 Election Will Affect Your Wallet

Summary: A Biden Presidency will send some ripples across the economy, but your long-term investment plan should stay the same

At the moment, it looks like Joe Biden is positioned to become the President of the United States. In any event, President Biden will certainly impact the economy.

So, how will your stocks be affected? It probably won't surprise you that it is more complicated than you might think! Read on to find out more about the short-term and long-term outcomes of this election, as far as the economy is concerned.

The Unique 2020 Election

It can not be understated how the unique events of 2020 have affected the economy as well as the election. Trump was running an admittedly thriving economy through 2018, 2019, and the first few months of 2020. However, the emergence of the coronavirus unsurprisingly caused the economy to tank, and his administration’s lack of action on the issue only exacerbated this problem.

Couple this with the civil unrest being experienced nationwide, and what you get is an economy that will not function properly until things are handled.

Usually, as stated above, a new president may destabilize the market a bit, but we could see the market stabilize if Biden can handle the coronavirus pandemic and civil unrest more effectively than Trump, bringing America back to more familiar ground.

Trump vs. Biden: Taxes

One of if not the biggest things on the average citizen's mind when it comes to how politics affects their money is taxes.

Trump and Biden have vastly different outlooks on that issue. Biden favors a more progressive tax plan, while Trump looks to cut taxes dramatically, mostly for wealthier Americans.

Trump's tax plan was great for wealthier Americans and Corporations, so it was mostly good for the market as well. This is what caused the thriving bull economy for most of Trump's term.

This all came crashing down in the wake of COVID-19. On the other hand, Biden's plan looks to raise taxes on wealthy Americans and corporations, reallocating some of that money into the pockets of workers.

This may cause investors to back off a bit and cause a bear market to form. This could be beneficial, as stocks may become cheaper before the market inevitably returns to form, as discussed earlier.

There is very little observable difference in the markets over the presidencies of Democrats and Republicans, so if the market dips due to a Biden presidency, it might be the time to buy.

Short-Term Changes

In the short turn, the market normally likes stability and does not like change. A newfound Biden presidency might rock the boat a little bit. However, depending on the handling of COVID-19 by Biden’s team could reassure some spooked investors.

Here is a great breakdown from Kiplinger on the issue.

With a Biden win, economists are claiming that the market will most likely sell off between 2-4%, with some even saying to "buy that dip," as it's simply the market's instability in the wake of a transfer of power that is driving values down.

Long-Term Outcomes

As far as long term economic benefit for most Americans, it depends on what you value. Trump's tax cuts vastly favor the wealthiest Americans far more than middle and lower-class Americans, but stocks and 401(k)s did well in the first few years of the Trump presidency.

Meanwhile, Biden looks to raise taxes on wealthy Americans, as well as potentially middle-class Americans, providing some economic relief to poorer Americans. Where you fall in this hierarchy certainly determines how Biden’s new approach will impact you.

On the corporate side, certain industries also project to perform differently based on a change in the presidency. For instance, traditional energy companies such as coal, gas, and fracking companies are doing better under Trump’s presidency, due to the President's lenient treatment of these companies as well as his lax environmental policy.

In contrast, Biden is insistent on rejoining the Paris Climate Accords and believes that climate change is a serious existential threat. Expect green energy such as solar and wind energy to perform far better under a Biden administration than a Trump one.

There is also a higher chance of coronavirus relief coming from a Biden Administration than a Trump Administration, meaning a slight reinvigoration of the economy could come from people having more disposable income. However, as long as the pandemic remains a problem, the economy will continue to suffer, especially for small businesses and local businesses.

What Should You Do?

Although you might want to make huge changes based on Biden and Democrats coming into power. However, the expert consensus on the issue is that you should stick to your long-term plan, and not make radical changes.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes