Article provided by Brent Soloway, October 13, 2016
There appears to be concern among many Americans about what would happen to the stock market in the event of a Clinton or Trump presidency. I have had clients request that their money be removed from the stock market until the election is over and there is time to see what is going to happen. In uncertain times, when many Americans are concerned about their financial future, this appears to be a reasonable request. However, let’s dig a little deeper into this strategy.
In the most recent Presidential debate, Donald Trump said American growth is stagnant, with GDP at 1% (a slight understatement in some economists’ views) while China is growing at 7%. This is an apples to oranges comparison as China is an emerging market economy with the U.S. being a developed market economy.
Mr. Trump has stated "we're in a bubble," and suggested we might be headed for recession. And recently, he maligned the Federal Reserve for creating what he says is a "false economy." When it comes to matters of Wall Street regulation, taxes, trade and boosting wages, what would Hillary Clinton do? It is unclear whether she would follow her husband’s centrist views on the economy, or take a more liberal view, as President Obama has.
Trump supporters are concerned that she'll cave in to bankers who hosted her lucrative speeches, and other Wall Street billionaires in her circle of supporters. Yet she appears to support strengthening the Volcker Rule, which imposes a "risk fee" on banks that make speculative bets with funds from their own accounts. She's also said she would look to pass the "Buffett Rule," closing tax loopholes for the highest income earners. In the most recent debate, she stated that she would close the "carried interest loophole", effectively raising taxes for money managers and hedge fund managers.
Yet some Wall Street pundits believe she is more of a known commodity, while Trump is a wild card. Wall Street detests uncertainty. So what would happen if either becomes President? My belief is that no one really knows!
With all this rhetoric, what is the investor supposed to do? Try not to be too smart. If you are properly diversified and have a sound investment portfolio made up of quality stocks and bonds, staying the course may be the best strategy. It has historically been very difficult to tactically "beat the market". If you get out, when do you get back in?
In its 2015 "Guide to Retirement", JP Morgan Asset Management illustrates what can happen to investor returns when they miss out on good days in the market.
For instance, if an investor stayed fully invested in the S&P 500* from 1995 through 2014, they would have had a 9.85% annualized return.
However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 6.1%.
Missing these days is so negatively impactful because of the loss of being able to compound growth during the balance of your investment holding period. Trying to time the market is extremely difficult and times of market turbulence may lead to emotional decision making. I feel It is best to manage volatility based upon your risk tolerance. There is a big difference between volatility and risk. Ask anyone who exited the market out of fear in 2008-2009 what their portfolio might look like if they had not succumbed to fear and emotional decision making.
During my lifetime, the country has encountered many challenging times. I have seen the Vietnam War, a 50% drop in the Dow Industrials and sideways movement for years after. Raging inflation in the late ‘70s and early ‘80s, Black Monday in 1987, the savings and loan crisis in the ‘90s, a tech bubble, housing bubble, and the "Great Recession". Although there are no guarantees going forward, it may be riskier to try to guess what is going to happen and what the market is going to do.
If you are concerned about the election, its impact on your portfolio and your future retirement, talk to your financial advisor. At the end of day, it’s your money. However, before making an emotional decision, please be armed with the facts. By doing this, you may be able to shut out all the "noise" and get on with your life.
Any opinions are those of Brent Soloway and not necessarily those of RJFS or Raymond James.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
*The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. It is not possible to invest directly in an index.
Diversification and asset allocation do not ensure a profit or protect against a loss.