By Matt Redshaw
We live in interesting times. Donald J Trump is President of the United States, and he is doing things, saying things, and tweeting things we’ve never seen from a US president.
Love him or hate him, he’s going to affect your investment portfolio.
How is He Already Affecting Your Portfolio?
Since the November 9, 2016 US election, US stocks (S&P500) are up 10.8%. Japanese stocks (Nikkei) are up 19.3%. European stocks (Eurostoxx 50) are up 7.4%. Canadian stocks (TSX Composite) are up 5.7%. Trump’s pro-growth policies are supporting not only US stocks but markets around the world.
S&P500 SINCE US ELECTION (November 9, 2016):
Getting Your Plan Together First
The first question to ask yourself is not about Donald Trump. It’s about you and your situation. Where do you want and need to be financially in 5, 10 and 20 years? You don’t have to be controlled by your environment. You can determine your vision and make a plan for your future. This puts you in the driver’s seat. Define that vision and work backwards from it to determine what you need to do to make it happen. It will involve consistency and hard work. Start now, save and pay down debt aggressively, implement an investment strategy you can have confidence in, and be aware of taxation. Move forward with your own plan, despite news headlines.
How Do You Invest in this Market?
Assuming that you have defined a goal and at least a basic plan (and if you don’t, we can help you with this), here are some recommendations for investing in this environment:
1. Be Adaptive
Our approach is to follow areas of market leadership. Different sectors and stocks will be strong at different times. We use a disciplined process to better align our capital with leadership in the market. We do not own everything at all times and we seek to avoid areas of the market that aren’t working.
2. Have Downside Protection
Trump’s policies are creating growth, but do you have a process to protect your portfolio if things go south (I’m not talking about Mexico)? If you own an index fund you will get what the market gets, and this would be the downside as well as upside. We use a defined process that triggers a sell on individual securities when they begin to lose favour relative to their peers. Our process will also pull us out of the equity market if leadership in the market changes from stocks to bonds or cash.
3. Revisit Your Allocation to Bonds
Conventional wisdom suggests you should own bonds and own more of them as you get older. We’ve been in a falling interest rate market for 30 years. Rates and bond yields likely won’t or don’t have much further to fall. The biggest risk is if they start to rise, this could put downward pressure on the “safe” part of your portfolio. Review how much of your portfolio is in this asset class, and how your bonds are being managed. Traditional bond portfolios have significant exposure to the risk of rising interest rates. Knowing the bond strategies with a proven ability to make money in rising and falling rate environments can make a critical difference this component of your portfolio.
Join Us in Person!
If you’d like to learn more about investing in the Trump era, join us for one of our upcoming wine and cheese seminars. Register to confirm your spot before they fill up!