FPH INSIGHTS - SPECIAL POST-ELECTION REPORTSubmitted by Financial Planning Hawaii on December 7th, 2016
Patches the Cat for President in 2020!
Post-Election Investment Commentary
Since a large portion of our clients live in or hail from “blue states,” I have received a number of communications over the past week from folks who are despondent about the election outcome and are fretting about the impact a Trump presidency may have on their portfolios.
Aside from the fact that we accommodate clients from across the political spectrum, there is one big reason why I never inject politics into investment planning commentary, and that is that such discussions would be decidedly counterproductive to investment success. There is surprisingly little connection between presidential elections or party dominance and short or long term market performance [See Great Reads articles below]. This truism will, of course, never prevent elected officials from taking credit for economic prosperity or pointing the finger of blame during downturns.
In terms of bad economic policies, the stock market is also a remarkably efficient self-correcting mechanism. When politicians make poor policy decisions or enact misguided legislation, the market reaction often provides an efficient impetus for correcting such mistakes or, alternatively, for inspiring people to vote the bums out in the next election cycle.
In the insufferably long build-up to this election, many clients asked if they should make portfolio adjustments in advance. The answer, as it has been in all previous elections, was consistently, “NO.” Last week's election offers strong supports this advice. As I watched the election results come in on CNBC and Bloomberg last Tuesday night, a parade of “experts” shared their predictions of an immediate market sell-off. If I had to wager, I would have guessed the same. With the uncertainty and shock of Trump’s election, a stock market drop seemed to be a foregone conclusion. Instead, the stock market posted its largest weekly gain of the year.
There have now been three instances this year – the “sell everything” calls during the minor January market decline, the fallout from the Brexit vote in June, and sell-off predictions in response to the Trump election last week – in which investors have been given textbook lessons on the foolishness of market timing. Make no mistake, there will be times when the market declines for a prolonged period of time (e.g. 2000-2002, 2007-2009). It simply goes with the turf. We fully expect and plan for such potential eventualities. When it happens, expect my guidance to be as consistent and unflinching as it has always been. To the extent that we endeavor to construct long term portfolios that plan for the possibility of prolonged market downturns, and, to the extent that the stock market investments in client portfolios (e.g., index funds, rising dividend stocks, etc.) are broadly diversified, market timing decisions have no place in long term investment management.
I hope this perspective is helpful.
On the outside chance that the commentary above was not sufficiently reassuring, below are excerpts from a post-election interview with Warren Buffett that appears in Vanity Fair.
Buffett said he was buying stocks a few weeks ago when he thought Clinton would win -- and that he continued to do so this week after she lost. He said stocks will be higher 10, 20 and 30 years from now and that would have been the case if Clinton won.
"Nobody can grow the economy 4% in real terms over time," Buffett said, referring to a Trump campaign promise. "The math is too extraordinary."
"There are a lot of things said in campaigns that don't happen after the election," he said.
The full article may be read at the following link - Warren Buffett on President-Elect Trump.
This is not a "filler" column. The following articles represent timely ideas that apply to at least some segment of our client base. Reading them is not mandatory, but may be beneficial.
John H. Robinson
Financial Planning Hawaii
2800 Woodlawn Drive, Suite 139
Honolulu, HI 96822
(808)564-0654 or email@example.com
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The information contained herein is general in nature. Neither Financial Planning Hawaii nor J.W. Cole provides client specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making investment or financial planning decisions with tax or legal implications.