How a Trump presidency could affect your investment portfolio?

10 / Nov AUTHOR NAME: Stuart Campbell 0 COMMENTS

First off, this blog has nothing to do with politics, even if it might seem that way at first.   It has everything to do with investing.
As you know, Donald Trump won the 2016 Presidential Election on Tuesday night.  On Friday, January 20, 2017, he will become the 45th president of the United States.  The news certainly came as a surprise to most pollsters and political analysts, who had Hillary Clinton as the favorite going into the election.  The news seems to have surprised many in the markets as well.  At one point, stock futures on the Dow® had fallen approximately 900 points.1
As of this writing on Wednesday morning, market reactions around the world seem mostly mixed.  The U.S. markets opened down before recovering again.  The Japanese market opened with a 5% drop, whereas China’s markets stayed mostly the same.2 It’s almost as if no one knows quite how to react to the news, regardless of whether you backed Trump or opposed him.  There’s just a lot of uncertainty.
Focus on that word: uncertainty.  From a financial point of view, uncertainty is the main thing we should be thinking about today. 
The fact is that investors, whether they’re big or small, institutional or individual, don’t like uncertainty.  No one enjoys not knowing what will happen.  As with any new President, there is major uncertainty out there as to what his presidency will be like, what his precise policies will be, and what kind of effect he’ll have on the economy.  Given his comments on trade, especially, where he has repeatedly promised to negotiate or scrap multinational trade deals, it seems safe to say that things will certainly be different.  Better or worse, no one knows. 
But different?  Certainly. 
And because we know things will be different, but we aren’t sure how, that creates uncertainty.  And that uncertainty leads to volatility—both now, and possibly in the future.  Why?  Because people tend to make emotional, rather than rational, decisions when they’re uncertain.  The proof is in the numbers I just quoted above.  No one—not our own markets, nor the Japanese, nor the Chinese, nor the Europeans, nor anyone, knows what will happen.  So the markets rise or fall because some investors are optimistic and others are nervous. 
But we’re not going to react that way, for two reasons. 

Reason 1: History

The truth of the matter is that there’s uncertainty regardless of who we elect as president.  If Clinton had won, there would still be uncertainty, with optimism in some quarters and pessimism in others.  History proves this.  After all, the markets fell over 5% the day after Barack Obama was elected in 2008. 
When he was re-elected four years later, the markets fell over 2%.  In both cases, the markets eventually recovered and enjoyed long-term gains. 
A similar thing happened when Franklin Roosevelt was elected, and Harry Truman.  More recently, the election of George Bush resulted in a 1.58% drop.3 
The point is that while Donald Trump’s election might have shocked political prognosticators, investors have seen this sort of thing time and time again.
So since we have experience with it, why would we want to react emotionally to it?  Why would we want uncertainty to drive our decisions?
Then too, we know that presidents don’t impact the markets nearly as much as we think they do.  That’s because the markets are driven by far more than just one person or event.  They’re controlled by the ebb and tide of trade, by the law of supply and demand, by innovation and invention, by international conflict and consumer confidence.  The markets are like life.  The course our lives take isn’t determined by one gigantic decision, but by the millions of small decisions we make every day. 

Reason 2: Planning, Not Predicting

I can’t predict the future.  I can hazard an opinion as to what President Trump will do, and what kind of effect it will have.  But I don’t know for certain.  Nobody does—and it’s foolish to make decisions based on shaky predictions.
That’s why we have always relied on planning to make investment decisions.  It’s slow, it’s methodical, and it’s certainly not sexy, but it works.  Instead of thinking, “Trump is going to do X which will mean Y, so I better do Z,” we:

  • • Create a plan to help you reach your overall goals.
  • • Determine how we should invest to help you reach those goals.
  • • Analyze how much risk we can afford to take on.
  • • Plan for future volatility by having a strategy to deal with it, so that we already know what to do when volatility strikes rather than guess or react emotionally.

These steps are essentially president-proof.  Trump or Clinton, Republican or Democrat, it’s what we do.  Because they work. 
So what’s the takeaway? 
The takeaway is that you might be happy Trump won, or you might be scared.  Both are perfectly normal, legitimate emotions to feel.  But neither emotion will drive our thinking. 
The takeaway is that you, like many investors, might be feeling a lot of uncertainty right now.  That uncertainty is completely justified.  But we’re used to uncertainty.  We plan for it.  We don’t fear it. 
The takeaway is that the markets might bounce higher or slide lower in the coming days and weeks.  But if they do, it will be because of emotion and uncertainty.  So while the markets are bouncing and sliding …
We’ll just keep on walking. 
Of course, if you have any questions, concerns, or ideas about the markets or your portfolio, please let me know.  I’m happy to speak with you either on the phone (952) 474-1270 or in person.  That’s what I’m here for. 
In the meantime, enjoy the upcoming holiday season!


Stuart Campbell, TEP
 

Sources:

1Alanna Petroff, “Wall Street frets over Trump presidency,” CNN Money, November 9, 2016.  http://money.cnn.com/2016/11/09/investing/premarket-stocks-trading/index.html?iid=surge-story-summary
2Paul R. La Monica, “Don’t panic! Trump win might not be bad for stocks,” CNN Money, November 9, 2016.  http://money.cnn.com/2016/11/09/investing/markets-donald-trump-hillary-clinton/index.html?iid=hp-stack-dom
3“How the stock market performs on, and after, election day,” Market Watch, November 9, 2016.  http://www.marketwatch.com/story/how-the-stock-market-tends-to-perform-on-and-after-election-day-2016-11-07

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