What Donald Trump Will Mean for America’s Personal Finances2016 ELECTION REPORT

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How Brokerage Firms Hide Fees

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Executive Summary

Market Outlook with America’s Next President

Deep Dive: Trump’s Plans for America’s Money

Taxes

Social Security

Education

Health care

Creating a Financial Plan That Withstands Political Change

Contents

2016 ELECTION REPORT

How Brokerage Firms Hide Fees

Election night finally came after a tumultuous year of Hillary Clinton and Donald Trump battling, and Americans have voted for Donald Trump to be the 45th president of the United States. With a business mogul in the White House comes questions about how markets will react and what changes individuals can expect in their day-to-day financial lives, if his policies are enacted.

Personal Capital developed this report to assess the short- and long-term market and personal finance implications of a Trump presidency. This report includes an analysis of Trump’s policies on taxes, Social Security, education and health care to help investors understand how their money may be affected, with actionable advice on how to plan accordingly.

The bottom line: Investors should not let short-term political gyrations drive their long-term financial priorities or investment decisions.

Executive Summary

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2016 ELECTION REPORT

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2016 ELECTION REPORT

Whether an investor is thrilled to see Donald Trump become President or wishes it would have been Hillary Clinton taking over the Oval Office, Personal Capital urges Americans not to let the election outcome impact their long-term investment strategies. All elections stir emotion, but this one has been more polarizing than most, potentially causing investors to

react emotionally in changing their financial plans.

Market Outlook with America’s Next President

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2016 ELECTION REPORT

The stock market has been volatile since election results came in. As it became clear that Trump was winning, the markets overseas tanked. S&P 500 futures were down the maximum allowable 5 percent in after-hours trading. Dow futures were down 750 points, a larger fall than right after 9/11. The Mexican peso plunged more than 11 percent to a record low against the dollar. By the time markets opened the morning after election night, however, most of the fear had dissipated and risk assets recovered ini-tial losses. US stocks opened just about flat. By the time Hillary Clinton delivered her concession speech, US stock markets were up over their Tuesday close. Any election, particularly one with such divergent candidates, brings with it a high risk of short-term volatility. And it’s possible that the volatility continues over the short-term as inves-tors digest the news.

Leading up to this election, the market’s very short-term moves generally reacted positively when Clinton gained ground and negatively when Trump surged. This may have occurred due to the uncertainty of electing an “out-sider” candidate or one who is viewed as having less predictable policy stances. But the framework of our

Constitution and the power of capitalism have proven both brilliant and resilient. We don’t have a prediction about how Donald Trump will perform as President, and there is no way to know which legislation may come to pass. Trump brings both a new set of risks and a new set of opportunities. Markets dislike uncertainty, so from a purely rational standpoint his victory is likely to be a head-wind in the coming months. That doesn’t mean markets will go down, it is just one factor. Corporate earnings, Fed interest rate decisions, geopolitics and things we don’t even know about yet will be just as important.

Many investors are asking which party is better for stock performance. Historically, stocks do slightly better in election years when a Republican wins the election, but fare much better in the first year of a new term when a Democrat occupies the White House, as seen in the chart below. This could mean that with Trump in the White House, stocks may be poised for a dip in 2017, but there is also some luck and timing in this. Most investors have multi-year investment horizons, and consequently they should not alter their long-term strategy based solely on historical tendencies for a given one-year period.

SHORT-TERM MARKET IMPACT

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

ELECTION YEAR FIRST YEAR

Republican President Elected

Democrat President Elected12.5%

7.0%

1.9%

18.7%

Annual Stock Market Performance by President Since 1945

Source: Ibbotson

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2016 ELECTION REPORT

A Trump presidency doesn’t change long-term asset class risk and return assumptions, and it doesn’t change assumptions any more than a Clinton presidency would have. Historically, having a Democratic president in office versus a Republican president has not had a clear impact on market performance. The charts below show, as far back as 1945, how the markets have performed under both Republican and Democrat presidents.

What is clear is that neither party’s leadership presents a strong enough correlation to stock market performance to dictate how investors should arrange their portfolio. For investors who can avoid market timing and impulse decisions, stocks generally do well regardless of party. And if people are worried that either party is disastrous to the economy or the market, there are 70 years of evidence saying otherwise.

LONG-TERM MARKET IMPACT

-5%

0%

5%

10%

15%

20%

9.1%10.3%

8.9%

6.7%

18.6%

6.0%

9.4%

11.9%

14.9%

-4.6%

12.6%

-5.1%

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Annual Average Stock Market Performance by President Since 1945

Source: CNN Money

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2016 ELECTION REPORT

Trump’s Plans for America’s Personal Finances

A new president can mean new policies on taxes, Social Security, education, and health care— hot topics that affect the personal finances of every American.

Personal Capital examined Trump’s and the Republican party’s policies around these topics to help investors understand how their money may be affected, as

well as best practices around planning tax strategies, Social Security, and the cost of health care and education.

TAX PROPOSALS

EDUCATION PROPOSALS

SOCIAL SECURITY PROPOSALS

HEALTH CARE PROPOSALS

+ Revise both the individual and corporate tax codes and collapse the seven tax brackets into three

+ Make wealthy Americans “pay their fair share,” but not at the expense of destroying jobs and undermining the ability to compete

+ Add an investment of $20 billion from federal dollars toward education

+ Work with Congress to ensure universities make a “good faith effort” to reduce college costs and student debt in exchange for tax breaks

+ Maintain current social security system

+ Maintain current Medicare programs

+ Repeal the Affordable Care Act

+ Replace with Health Savings Accounts

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During his presidential run, Trump appealed to middle-income and wealthy voters with retirement

savings, and his plans outline tax deductions across the board. Trump wants wealthy Americans to “pay

their fair share ,” but not at the expense of destroying jobs and undermining the ability to compete.

Additionally, he plans to reduce the cost of childcare by allowing families to deduct “the average cost

of childcare” from their taxes. For businesses, he plans to eliminate special interest loopholes, reduce

the tax rate from 35 percent to 15 percent, and eliminate the corporate alternative minimum tax in

an effort to keep more jobs in the United States.

Taxes

HOW THIS IMPACTS INVESTORS

Trump plans to revise both the individual and corporate tax codes. He proposes collapsing the current seven tax brackets into three. Married-joint filers with an income of $75,000 or less will fall into the 12 percent bracket; those earning more than $75,000 but less than $225,000 will fall into the 25 percent bracket; and those earning more than $225,000 will fall into the 33 percent bracket.

Trump also plans to repeal the 3.8 percent Affordable Care Act tax on investment income. Additionally, Trump plans to increase the standard deduction for joint filers to $30,000 (from $12,600) with caps at $200,000. For single filers, the standard deduction would be $15,000 with a cap of $100,000.

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PLANNING FOR TAXES

The likelihood of Trump’s tax proposals actually being enacted relies heavily on his ability to work with the Republican-led Congress and House Speaker Paul Ryan, who was not a strong Trump supporter during the election. And while the Democrats maintain their minority status, the power of the filibuster in the Senate could represent a challenge to Trump policies. Unlike a CEO of a major company pushing through a corporate agenda, the President of the United States cannot enact widespread change on his own accord. Enacting changes to the tax code requires much compromise. It will be wise to wait and see what, if any, legislation is passed before significantly changing a tax strategy. Regardless, now is an ideal time to review investments to make sure taxes are optimized. There are three main tactics anyone can utilize to be tax-efficient:

Tax-Loss Harvesting

This means selling securities at a loss to offset other realized gains. While loss-harvesting should be a year-round effort, investors have until December 31 to lock in losses. Even if investors don’t have realized gains for the year, they can claim up to $3,000 in losses as a deduction. The use of individual securities within US stocks allows for significant tax savings opportunities compared to ETFs alone.

Tax Allocation

This is the process of putting high tax-yielding assets in tax-deferred or tax-exempt retirement accounts and lower tax-yielding securities in taxable accounts. Investments such as high yield bond funds or REITs should go in IRAs, while municipal bonds, other low yielding bonds and non-dividend growth stocks should typically be purchased in taxable accounts.

Tax Efficient Securities

Perhaps the most important tax optimization involves buying tax efficient securities. Usually, this includes individual stocks or exchange traded funds (ETFs). Mutual funds are notoriously tax-inefficient because they are forced to distribute capital gains even if those gains came when an investor didn’t even own the fund yet. Also, most active mutual fund managers are much more concerned with the top line performance number than the less reported after-tax number. This can lead to high turnover and high capital gains even if fund performance isn’t great.

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Trump plans not to touch Social Security and plans to maintain current Medicare programs once he

is sworn into office. Throughout the election, Trump has stated that his plan to boost the economy

will take care of any long-term Social Security problems. Regardless, many experts remain skeptical

that Social Security can avoid either a reduction in benefits or an increase in taxes.

Social Security

HOW THIS IMPACTS INVESTORS

Approximately 10,000 Baby Boomers reach retirement age daily, and that number will only increase when Millennials – the largest generation in the U.S. ever – enter retirement. In 2010, the Social Security trust fund began spending more money than it received. Current projections suggest it will not be able to make the full

payments promised starting in 2034. This means that many Americans will not be able to live the American Dream with the promise of retiring comfortably at age 65 if they are banking on Social Security to carry them through their golden years.

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PLANNING FOR SOCIAL SECURITY COSTS

With Trump’s victory and the vagueness of his plans for Social Security in the future, it is important for people getting close to the age where they will be receiving Social Security to maximize their benefits on the assumption that no major changes to payouts will occur. For single people, that usually means deferring receipt of payments as long as possible, assuming a life expectancy upwards of 80 years old. For married people, it usually means the higher earning spouse (especially if that spouse is older or a man) should defer as long as possible because whichever spouse lives longest will continue to receive the highest benefit. It often makes sense for the other spouse to take benefits early (at 62), or at the full retirement age (at 66).

Investors Over Age 60

It remains very possible that investors over the age of 60 will experience benefit reduc-tions and that cost of living adjustments will be reduced to reduce the risk of Social Secu-rity insolvency. This reduced risk means investors over 60 should not take payments early if they are only doing so out of fear that Social Security will dry up altogether.

Investors Age 40-60

For investors between 40 and 60 years old, given the current state of Social Security it would be conservative to plan on a modest Social Security tax rate increase while still working, and/or some reduction in Social Security benefits. Again, this is an estimate, but a figure such as a 10 percent reduction in inflation adjusted benefits may be a good working assumption.

Investors Under Age 40

Many people under 40 assume they will get no benefits, which may be too pessimistic. However, to be prudent, it is wise to assume a 15 to 20 percent reduction in expected benefits (based on current underfunding rate and the real possibility that Trump’s eco-nomic growth targets are optimistic), or a higher Social Security tax rate on remaining working years.

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Trump wants to immediately add an additional investment of $20 billion towards education by

reprioritizing federal dollars. Distribution of this federal grant would favor states with private

schools, magnet schools and charter laws. He would also like states to follow suit, contributing

another $110 billion of their own education budgets towards school choice, which could

amount to $12,000 in school choice funds available to any K-12 aged child living in poverty.

Additionally, Trump plans to work with Congress to ensure universities make a “good faith

effort” to reduce the cost of college and student debt in exchange for tax breaks. With this influx

of federal money, it is Trump’s vision that a two or four-year college education will be easier to

access and pay for.

Education

HOW THIS IMPACTS INVESTORS

The costs associated with Trump’s education cost policies may prove to be too high to be practical, and they may not cover every American family who needs them. Investors should still plan ahead if they hope to support their children’s education, as they may not be able to rely on federal support.

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529 Funding Chart

AGE 0-4

AGE 5-9AGE 10-14

AGE 15- COLLEGE

$20k-$30k

$40k-$50k

$35k-$50k

$70k-$100k

$50k-75k$75k+

$120k+$100k-$130k

est.cost

est.cost

Suggested funding targets:

PLANNING FOR EDUCATION COSTS

It is wise for investors to plan for education costs to be close to what they are now, adjusted for inflation. Last year alone, the College Board reported that published tuition and fee costs had risen 3 percent since the year before, and that was on top of very little inflation in the rest of the economy. If Trump’s plans for reducing the cost of college don’t kick in soon, parents hoping to support their children through school are best off making a plan now.

An appropriate average tuition cost to aim for is $25,000 per year for public schools, and $40,000 per year for private schools, in today’s dollars. Parents with infant or toddler-aged children who are saving with a 529 plan should aim for funding roughly 30 percent of the expected cost upfront. $28,000 is a good starting amount, since that remains under the annual gifting limit (gifting limits are $14,000 per person per giftee and $28,000 per married couple per giftee). Here is an easy guideline to follow for how much should be in a child’s 529 by age if the goal is to cover all or almost all college costs:

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Trump made grand campaign promises of repealing and replacing Obamacare. He’s said he’d

replace the Affordable Care Act with Health Savings Accounts (HSAs). These HSAs are medical

savings accounts that allow individuals to save a portion of their income tax-free toward medical

costs. The accounts can roll over annually if not spent within the year. Additionally, Trump plans

to allow Americans to purchase insurance across state lines to create market competition. Again,

much like with tax reform, both houses of Congress must pass this legislation, and Trump must

sign it into law. Given the strong Republican opposition to Obamacare and the fact that they will

maintain control of both houses, health care reform looks likely.

HOW THIS IMPACTS INVESTORS

If Trump’s plan is enacted, investors should not ex-pect health care costs (and especially prescription drug costs) overall to get significantly less expensive. A 2016 study suggested that a 65 year-old retired couple will need about $260,000 to pay for health care expenses throughout their lifetime, an increase since last year’s estimate of $245,000. This estimate assumes that the couple does not have employer-provided coverage but

does qualify for Medicare. It does not include long-term care or most dental services. Furthermore, the Employ-ee Benefit Research Institute suggests that $376,000 is required to have a 90 percent chance for this couple to pay all of their health care costs. The problem: most Americans do not have $260,000 in total savings, let alone that amount set aside just to pay for health care.

Health Care

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PLANNING FOR HEALTH CARE COSTS

Most people entering or already in retirement should plan on spending at least $250,000 for health care expenses. The bulk of this will probably come toward the end of life, which means that it gives an individual more time to grow the assets that they will need to pay for health care. However, health care inflation has consistently been running faster than basic inflation, so a plan is critical. A good resource to estimate health care costs in retirement is the AARP’s health care costs calculator. By plugging in personal details like age, health conditions, and target retirement date, individuals will receive an estimate of how much they can expect to receive through Medicare in retirement, and any deficit they need to plan for on their own.

Note that while Medicare is a useful resource, it does not cover all health care costs. For starters, it does not cover dental or vision expenses. Also, Medicare Part A and B offer different levels of coverage. Part A covers hospital insurance, and Part B covers medical insur-

ance. Americans have to pay for Part B, and the cost goes up the higher an individual’s income is (with a max of nearly $400 monthly for an individual with over $214,000 in adjusted gross income or couples with over $428,000 in adjusted gross income). Medicare.gov has all of the information an investor needs about the pro-gram and also offers a place to sign up directly upon turning 65 (or earlier for people with a disability or per-manent kidney failure who are under 65).

If a person is retired, not yet eligible for Medicare and has income that is between 100 percent and 400 per-cent of the federal poverty level (poverty level in most states being $11,880 in annual income for an individual, or $24,300 in annual income for a family of four), he or she may be eligible for tax credits on a health insurance policy purchased on a Health Insurance Marketplace. This means careful planning in terms of distributions from retirement accounts and when to start Social Se-curity can save a lot of money on insurance.

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Creating a Financial Plan that Withstands Political Change

The 2016 election has spurred people across the country to worry about both the short- and long-term market ef-fects of the selection of the next US president. However, while the market may react in the short-term to unique political events, research shows that having a Democrat or a Republican in the White House has not swayed mar-kets or the economy greatly in the long-term (for better or for worse).

Among Personal Capital’s 1.2 million users, there were spikes in dashboard and app activity during many criti-cal points in the election (like Bernie Sanders losing the primaries, days following the presidential debates, and in the midst of the Republican and Democratic conven-tions), demonstrating that people are more concerned about their money during political events. However,

investors must keep in mind that short-term market fluctuations and politics should not impact a sound, long-term investment strategy. And whether Americans are thrilled to see Trump in office or not, the successful rollout of his policies on taxes, Social Security, educa-tion and health care will still come down to compromise within each house of Congress, across both the House and the Senate, and between Congress and the White House.

A strong financial plan starts with knowing where an investor stands today, formulating goals, and taking stock of whether current spending and investing strat-egies will amount to a secure retirement. For free tools that will help anyone track their personal finances or for a free consultation with a financial advisor who can assist in putting together a long-term financial plan, visit www.personalcapital.com.

2016 ELECTION REPORT

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2016 ELECTION REPORT

Disclaimer: This communication and all data are for informational purposes only and do not constitute a recommendation to buy or sell securities. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data is obtained from sources believed to be reliable. However, Personal Capital cannot guarantee that data's currency, accuracy, timeliness, com-pleteness or fitness for any particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expecta-tions, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

RESOURCES

+ http://image.email.personalcapital.com/lib/fe92127274650d7c7c/m/1/Market+Outlook-4-Q3-NC.pdf

+ https://www.donaldjtrump.com/positions

+ https://blog.personalcapital.com/retirement-planning/the-future-of-social-security/

+ https://blog.personalcapital.com/whitepapers/estimating-health-care-costs-in-retirement/

+ https://blog.personalcapital.com/financial-planning-2/10-overlooked-tax-deductions-will-save-money/

+ http://www.pewresearch.org/daily-number/baby-boomers-retire/

+ https://www.ssa.gov/oact/tr/2015/tr2015.pdf

+ http://www.pewresearch.org/fact-tank/2015/08/18/5-facts-about-social-security/

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