Certain uncertainty is the theme of the 2016 election results.
In a historic election, Donald Trump will be our nation’s 45th President. Whether you are elated, disillusioned or disappointed, we can all agree that the results are surprising.
While the news shocked global stock markets overnight, reactions moderated by day break. This is yet another example that polling and probabilities will only take you so far.
Behavior Drives Markets
Human behavior is the ultimate driver of results, both financial and otherwise. While there may very well be some changes in store, it is important to keep the big picture in mind. If a legitimate sell off in the financial markets presents a buying opportunity, we will be prepared to take action. It’s also possible we see a quick sell off followed by recovery, similar to the results after Brexit.
Five Potential Outcomes
While the election results should not warrant a change to your investment strategy, there are some plausible financial outcomes that should be planned for. Capital Group identified five key areas that were discussed on the campaign trail.
• Infrastructure Spending
• Lower Taxes
• Changes in Trade Deals
• Health Care Changes
• Looser Fiscal Policy
While changes may be in store it is important to remember that the economy will continue to cycle in and out of periods of growth and recession regardless of who is President. The bulk of economic activity will continue to be comprised of our day to day routines of exchanging goods and services, educating our children, shopping for necessities, buying and improving homes, and planning our next vacations. These are the things that will stay the same.
Dealing with Uncertainty In Your Portfolio
For the investment markets, as with the Brexit vote earlier this year, it is impossible to predict how the markets will react as Great Britain saw a significant short term sell off in their stock market followed by a quick turnaround and is now higher than it was prior to the vote. The British Pound has declined since the Brexit vote and if we see a decline in the US dollar that could boost the US dollar value of non US investments.
All in all, the mostly unexpected election results do not change the importance of following a disciplined investment strategy. Our strategy recognizes that short term markets are highly unpredictable, so we focus on keeping funds that will be needed in the next five to seven years in more stable investments.
Funds that will not be needed for at least five years are invested based on valuations and risk/reward comparisons between bonds and stocks. With bond yields at or near historic lows, US stocks still have a place but high valuations indicate continued caution. Non US stocks are much cheaper than US stocks so a slight overweight remains warranted.
We understand that you may have concerns about this latest development. Please contact us if you want to discuss your personal situation in more detail.
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