The next 4 years are going to be more difficult for investors
From: marketwatch.com
A bear market will still come, and you are still responsible for saving enough for retirement
America voted for change on Tuesday. Whether you celebrate that result or dread it, don’t react by making significant changes to your investment portfolio.
Yes, the immediate aftermath of the election is greater market volatility, but that was obvious hours before the election results were clear, as futures started moving because the stock market’s power brokers had to adjust for previously pricing in a different election result.
Then, as Americans started contemplating the lasting effects of the vote, came the texts, posts, Tweets and comments. The people who joked that they would leave the country if the election turned out as it had were not hiring movers but were considering packing up their investment portfolios, worried about the future of their retirement savings.
But if President-elect Trump was right when he said the election would be “Brexit plus, plus, plus” — a reference to Great Britain’s surprising vote last summer to leave the European Union — then that vote also needs to be considered in terms of how it affected nervous investors.
In truth, it didn’t. After a very brief shock, the U.K. and U.S. stock markets DJIA -0.15% rebounded with a vengeance. Brexit now is considered a longer-term market concern, with its real impact to be felt much more over the next 12 to 24 months than the last six.
President Trump, of course, is a much bigger story and will have a broader impact than Brexit, but investors need to ignore the news as a portfolio event, because making changes now means hoping to be pulled along by the herd or taking steps to capture an anticipated bounce off of the market’s initial trust-fall, both classic mistakes.
While the election effectively should have ended talk that the political game is rigged, the stock-market game SPX +0.33% is not going to prove any such thing. Short-term moves and noise favors the insiders and long-timers, the guys who were unemotionally trading futures instead of watching the election results stunned and slack-jawed or elated and cheering.
The immediate advice to investors therefore must be “Don’t just do something. Sit there.”
But while you are sitting, start to recognize what a Trump presidency can’t do.
No matter who was elected Tuesday, they were going to face economic conditions that suggest the current cycle is coming to an end during the next four-year presidential term.
Recession and a bear market are coming, and while the actions of the president can affect the breadth and depth of any decline, they can’t fight off the bigger, inexorable forces of the market.
Talking to economists, it’s hard to find many who expect the downturn to happen immediately, so preparing for Armageddon based on reactions to the new president means wasting two or three years of potential growth.
Diversifying a portfolio, rebalancing to target allocations and playing some defense means making subtle changes that pay off in time. Make sure your portfolio is on-plan, if you have one; if you don’t have a plan, now would be a good time to get one that provides the emotional discipline to live through whatever comes next.
