Today we wake up with an answer to the big question: Who will be the President of the United States?
Please understand that my comments here today are not political. I fully understand and respect the strong emotions that cover the spectrum. Some of you reading this are elated while others are likely quite frightened. I won’t be so naïve as to say this is normal after every election. There’s no question this particular election held a higher degree of emotion and the candidates were very polarizing.
Instead, my comments are directed solely at the impacts on the world economy and financial markets. After all, nobody retires or leaves a legacy based on rhetoric or campaign promises. Your savings patterns and your investment portfolios are what actually carry the weight and buy the goods and services we each want and need.
So what should we expect now?
The fact is that the population voted for change in the form of an out-of-the-box candidate, so there can’t be ready-made expectations shaped by history. Donald Trump hasn’t yet posted a record as a politician so we are left only with his campaign rhetoric from which to draw our likely outcomes. We are very familiar with candidate Trump, but President Trump could be something quite different. In this instance, we do know that campaign talk and policy implementation are sometimes dramatically different.
Will President Trump have success along the lines of renegotiating trade deals or repealing and replacing Obamacare? What final stance will he eventually adopt on immigration and protectionism? How cooperative will the House and Senate be? How will he approach the repatriation of the billions of corporate dollars held overseas? And what impact would any of this have on the economy? How many jobs will be created as a result?
These are unknowns at this point, and clear expectations aren’t likely to emerge any time soon.
Financial markets don’t like the unknown. Typically when there is a wide array of potential outcomes, markets get nervous and react negatively.
Consider the surprising “Brexit” vote that shocked the markets earlier this year. This surprising Trump victory is being compared to that vote in many circles. The markets fell sharply and swiftly on the heels of that surprise, only to be back to their pre-vote levels just two weeks later.
Would something similar play out this time around? It wouldn’t surprise me at all to see something along those lines. But we need to also recognize that this prevalent notion might be wrong and the markets might not struggle at all.
Of course, there’s no way to know the future; particularly the shorter the time frame. In other words, speculating about what the markets will do on a daily or even weekly basis is foolish.
And yet human nature often grabs us and makes us want to make longer term decisions on these immediate vagaries. These types of quick emotional responses are what tend to cost investors most dearly.
The last thing I want to see is anyone jeopardizing their retirement security due to a strong emotional reaction to a presidential election. This could be done by getting too nervous and abandoning the markets altogether. It can also be done by becoming overly optimistic and taking on greater risk than what is prudent.
Volatility in both directions is likely to rise in the near term based on all of the cross-currents that come with a Trump election. This was indeed a surprise to the markets.
I would have to think that some of the larger speculators in the markets have found themselves in unexpected and dangerous territory. If that’s the case, they are likely to be a temporary selling force within the markets.
But keep in mind the very high cash balances that are currently being held by investors and funds. It is quite possible that for every one of these potentially wrong –sided traders there is a buyer in waiting.
In any event, the miscalculations of these types of speculators shouldn’t derail a disciplined and diversified portfolio. They should have very little impact on assets geared toward the longer range goal of outpacing inflation and creating a more secure financial future for folks who have spent decades saving their capital and putting it to work in the broader economy through the financial markets.
Said another way – don’t let the panic of others force you into an excessively defensive mindset that ironically serves to increase your investment risk through market timing. And also don’t forget the old saying – confidence is that nice warm feeling you get just before you fall on your rear end. Don’t get too scared, and don’t get too greedy.
There are a lot of people who feel as though yesterday was one of the most important days for our country’s future. These people have this strong opinion, but yet from very different perspectives. For some it’s joy and for others it’s confusion. For some it was important in a good way and for others it was just as bad as they could possibly imagine.
This is the nature of politics. The vote has been taken and the results are in. Conciliatory acceptance and concession speeches have been given. They’ve struck the tone that now is the time to unite and not underestimate the strength and resilience of our country and our democracy.
So when it comes to investing, as much as we want to believe yesterday was truly pivotal; the reality is that it likely wasn’t.
Please don’t hesitate to give us a call if you want to discuss these things in greater detail and drill into how they might impact you and your portfolio specifically. That’s why we’re here! Your hard earned savings and the portfolio it has become is meant to provide you peace of mind, not cause you stress. Please let us know however we might be able to help as we all move forward into the great unknown that is the future.
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