Working as a retirement planner and investment advisor for one of the worlds largest investment firms, I hear copious amount of concerns from my clients. A major theme among a decent number of them lately has been Trump. I hear, “I’m looking for stable value. Get me out of the market before Trump burns this whole thing down…” and on and on. I believe that this reaction is the manifestation of a fear that the POTUS is going to initiate a nuclear winter, start WWIII, or worse? Let me be the first to assure you that if this ends up being the case… your 401k investments are the least of your concerns. Alternatively, if Trump does nothing but cut taxes for individuals and businesses, strips away regulations and allows commerce to occur unhindered, you could regret your irrational flight to safety.
What many people seem to forget is that the market isn’t simply a mirror to the current events of the world. Its a place where businesses can use a pool of willing investors to grow their capital, increase production, and lower their prices to compete successfully. Burdensome regulations and taxes are more of a hinderance to stock gains than world events. A war or terrorist attack may hinder stocks in the short run, but shouldn’t cause the average investor to lose his shorts.
My client’s concerns have made me think though. Over the last half century (the period where the Market’s expansion is most notable) there have been a multitude of terrorist attacks, wars, and national disasters… How have the markets responded to these events? Starting with 9/11 and a four day freeze that occurred directly after, the dow closed almost twenty percent down the next trading day. Scary right? Well, not so much. the index had rebounded to right around the same 9500 it was trading at within a month. When the Gulf War started in 90′ the market was virtually unaffected. When Kennedy was assassinated the Dow saw a 5% drop and an almost immediate recovery… that same day! Hurricane Katrina caused, or occurred alongside a 1.5% slide in the major indices.
Here is the bottom line. Trump is going to be in office four, maybe eight years. If you’re planning on retiring within that timeframe and you have a majority of your portfolio in stocks, Trump isn’t your problem. Your asset allocation is. If your investment horizon is longer than 10 years, then you have nothing to worry about. Diversify your holdings, and buy in often. It’s been shown over and over, that those who treat small dips in the market caused by global events as buying opportunities or even those who simply weather the storms win every time. Those that sell at the slightest fear of something on the horizon, miss out on gains and will end up struggling through their retirements.