Political news has been dominating the headlines since the start of the election cycle last year, and it doesn’t look like it’s going to be letting up any time soon. After a strong end to 2016, we have started off 2017 equally as strong. This has led people to ask me what I think about the markets going forward.
There’s a saying that markets have a way of making people look foolish, especially if you think you can predict what will happen next. I don’t pretend to know what will happen. But whatever your feelings are right now – positive or negative – my advice is always the same: don’t put your emotions in the driver’s seat of your portfolio.
Here’s why.
A little bit of history
In 25 years, I’ve yet to see a situation where political news justified abandoning
a thoughtful, disciplined, and diversified approach to personal investing. That’s a period of time that saw the longest economic expansion on record (according to the National Bureau of Economic Research), the largest recession in the modern age, four presidents from two parties, and the biggest terrorist attack in history on American soil.
Look back a little further, and, in no particular order, we’ve seen political scandals, a presidential assassination, the brink of hostilities between the US and the former Soviet Union, and the fall of the Berlin Wall.
And yet, all the major indexes recently hit historical highs.
Even though past performance doesn’t guarantee future returns, the example is illustrative: despite what has arguably been a lot of turmoil and change over the years, the economy has a way of continuing to march forward when time is on your side.
“In 25 years, I’ve yet to see a situation where political news justified abandoning a thoughtful, disciplined, and diversified approach to personal investing.”
Responsible investors don’t react – they plan
In other words, failing to plan because you’re either too excited or too fearful is, as the saying goes, planning to fail. Procrastination and “analysis paralysis” are real risks – and a big mistake.
It’s my opinion that the best thing you can do in any environment is to build a thoughtful and diversified approach to your portfolio, and to stick with that program. This especially applies to long term time horizons: if you’re planning to retire in 20 years, you’ll see at least 3 presidential administrations in that time – and you’ll probably see a whole lot of other things too. But discipline, planning, and a prudent approach to risk can help to see you through it.
Of course, if you’re working with a shorter time horizon, your needs will almost certainly be different. You might need to adjust the risk in your portfolio and you may need to adapt your plans for potential volatility. However, that’s just good planning: these are steps that I would advise no matter what’s going on in Washington.
Use this moment for something good
When it comes to politics, whether you’ve been concerned, elated, indifferent, or distracted in response to all the news, times of heightened emotions can be put to good use. Sentiment shouldn’t have a seat at the table when it comes to investing, but strong feelings can help push you to the table.
Concerns about risk and volatility should spur candid conversations with your advisor about the risk parameters in your portfolio and whether they’re in line with your expectations and needs. Feelings of uncertainty about the future are an opportunity to talk about discipline and the important role that uncertainty always plays in a diversified portfolio.
In situations where you’re having trouble relating to your advisor or aren’t sure whether your portfolio is doing what you need it to be doing, times of emotion can help you reassess your advisory relationship and whether it’s meeting your needs.
Staying with the big picture
What’s important to remember is this: while the markets are often emotional, investing shouldn’t be.
The way we talk about your portfolio and your strategy should be methodical, thoughtful, and based on an honest assessment of your needs and the information we have. No one can predict what’s going to happen in the long run, which is why prudence and discipline are so important in investing.
Whether you’re feeling concerned, elated, or something else entirely, use this opportunity to build a robust plan for your finances – and if you’re looking for advice or want to talk, I’m always available.
Written by Bradford Pine with Anna B. Wroblewska
