Trump and Your Investment Portfolio

If you were watching the results on election night, you saw the financial markets react. In the wee small hours of November 9, Dow futures plunged just over 4% while gold and US Treasuries soared. (Markets are funny and tend to be unpredictable in the short term). Since the election, however, the Dow Jones Industrial Average has reached an all-time high.

Sure, Donald Trump is an unconventional politician and has said that he likes to be unpredictable. At this time, we’re not sure what to think or how he’ll govern. Once his cabinet is in place, we’ll have a better idea. Still, you may be thinking that a Trump presidency is “different,” but market volatility is certainly not something that we haven’t seen before. In the past 18 months, we’ve had several instances of investors feeling that “this time it’s different.”

Back in July 2015, the Greek financial crisis dominated the headlines. Investors feared Greece’s problems would spread to the rest of Europe. Then the following month, it was “Black Monday.” When the Chinese government devalued the Yuen, markets went tumbling down. At the beginning of 2016, the Dow Jones Industrial Average got off to its worst start ever dropping 5.5%. And most recently, we had Brexit. Shortly after Britain announced it was exiting from the European Union, the market lost 6% but days later gained back 8%. The bottom line is: Markets, like people, do not like change. But through all this hubbub, U.S. markets continue to hover around historical highs.

Back to your investments. What should you do to protect yourself during a Trump presidency? Nothing. If you’re diversified, you don’t need to sweat the headlines. We can’t predict the future, and we sure as heck can’t predict the markets. That’s why it may be wise to follow the investment ways of some of the world’s wealthiest families and most sophisticated investors. They manage risk through diversification.* This means not weighting one’s investments in with any sector of the economy such as energy or banking, or falling in love with an individual stock such as Apple.

Besides, your investment portfolio isn’t designed for a four-year presidential term. You’re in it for the long run. Investors who stay the course have historically been rewarded. Here’s one thing we can anticipate during the next four years. The markets will go up, and the markets will go down. And parts of your portfolio will do better than other parts. My advice is to stay disciplined, diversified* and focused on the future. If you’re not sure whether you have enough diversification*, a fee-based financial advisor can help you.

*Diversification does not guarantee a profit or protect against a loss.

The Dow Jones Industrial Average is a widely watched index of 30 American stocks thought to represent the pulse of the American economy and markets.

Market Volatility: Don’t Panic. This is Only a Test.

Do you remember this public service announcement? “This is a test. This station is conducting a test of the Emergency Broadcast System. This is only a test.”

The Emergency Broadcast System was created in 1963 during the Kennedy administration and used until 1997. If you were watching a show during that time, you knew not to change the channel or adjust the dials on your TV set. (And in the early days, the three or four other channels you could get were all usually conducting the same test anyway.)

Now let’s add a few words and phrases to that PSA in terms of your investments over the past year: “This is a test. This is only a test of your will and patience.”

This past year, most of your investments were flat (at best) and some even lost money. But if you have a well-diversified portfolio, you should not change your investments — and you should certainly not attempt to guess which investments will be the best performers in the coming year. Investing is inherently unpredictable. But as a long-term investor, you must not be swayed by volatility, even when the grass looks greener elsewhere.

Market cycles

In 2015, many investors may have asked, “Am I in the wrong investments?” Well, if your portfolio is well-diversified, probably not. In fact, it’s likely that it was the markets that performed poorly, not your investments. The reasons for that vary, from economic uncertainty in China to the dramatic drop in energy prices and concerns over potentially rising interest rates.

But none of this is unusual. Markets, like many things in life, tend to cycle. They go up and they go down, and we don’t know when they will do so. The markets have had a pretty good run since 2009, so it seems to me that we were due for a flat or negative year (of course we couldn’t know exactly when that might occur).

What to do?

One of my clients recently asked, “Did anything do well?” As a matter of fact, international small companies did pretty well. (For instance, Dimensional’s International Small Cap Growth fund (DISMX) yielded around 10.5% last year.) He then asked me if he owned shares of any of those kinds of companies. I told him that his broadly diversified portfolio has a small portion of international small companies in it.

Then he wanted to know if he should move most of his money into international small companies. I responded with a resounding “No!” Besides being a riskier investment category, international small companies show absolutely no evidence that they will do well again this year.

No memory

I asked my client to imagine that he was flipping a coin and trying to guess which flip would result in heads and which flip would result in tails. Of course, after numerous tosses, we agreed that he’d have an even distribution of heads and tails. But, more importantly, we agreed that a coin is an inanimate object with no memory. Just because five flips have landed on heads doesn’t mean that the next flip will land on tails.

I explained that stocks are the same way. They have no memory. There is no guarantee that international small companies will continue to do well next year. Sticking to the discipline of having a broadly diversified portfolio helps us avoid falling prey to the false notion that last year’s best performers will be the winning performers the next year.

Keep it boring

A well-diversified portfolio doesn’t speculate or gamble on what is going to happen next. “Investing should be boring,” I told him. “If you want excitement, try hang gliding. If you want to gamble with your money, go to Vegas.”

So in 2016, resolve to stick with your well-diversified portfolio. If you’re not sure whether you’re diversified enough, have a trusted advisor take a look. But remember, this past year was simply a test of your patience and your will to stay appropriately invested, even when the going gets rough.

(This article was originally published on

Stay Diversified and Don’t Get Hurt

Recently, several clients have asked me why their account has not “made any money” this year. My answer is always the same:  “There hasn’t been the kind of money to make like we’ve made the past couple of years.” That is, unless you had the foresight twelve months ago to put all your money into an International Small Company mutual fund which has yielded about 8% year-to-date returns. Except for nominal returns in bonds, most of the other market segments have produced flat to negative returns in 2015.

Does this mean your investments are bad investments? Of course not.  It just means that it’s been a tough year for markets in general. China’s stock market plunged back in June, and in the past couple weeks, it seemed as if the markets were anticipating the Federal Reserve Bank raising its benchmark interest rate.  Energy stocks, in particular, have taken a very big hit (but cheap energy prices have been good for our pocket books). None of what I’m describing is unusual. Markets, like everything, tend to cycle.  After all, the markets have been on a pretty good run since 2009, so we were due for a flat or negative year.

We can’t predict the economy, and we for sure can’t outguess the markets.  So, how do you minimize your risk in a flat or negative year?  The best thing to do is to hold as many diversified asset classes (international, domestic, real estate, small and large companies, etc.) as possible.  And that’s precisely how your portfolio is designed–to protect you in times of uncertainty or volatility.

The discipline of having a broadly diversified portfolio helps us avoid the faulty idea that there is a trend of higher returns in last year’s best performers.  Look, stocks aren’t human.  They are inanimate and do not have a memory!  If we try to predict trends or invest all of our money into one company, chances are we’re going to get hurt.

So let’s stay disciplined and stick by your well-diversified portfolio.  Let’s focus on the long-term and not speculate or gamble with your money.  Or, worse, make decisions based on today’s headlines or Wall Street hype. Of course, if you want to discuss “tweaking” or rebalancing your portfolio, we can sit down together in the New Year.  You can reach me at:  216-292-8700 or email me at:

I Know Venezuela

I’ve never visited Venezuela, but I have many friends who have emigrated from there to the United States. From their accounts, I feel I know a little about Venezuela, especially when it comes to the country’s economic plights.

Venezuela is basically a one-trick pony economy with 95% of its GDP (gross domestic product) reliant on one commodity–oil. Even when oil prices were much higher, Venezuelans experienced massive food shortages and high inflation. These problems only have exacerbated with the drop in oil prices. For instance, when my friend’s family visits here, they stock up on clothes and electronics because these items cost anywhere from two to five times more in their home country.

Unfortunately, Bill Ross, who is a retired camera salesman from Queens, NY, thought he knew a little something about Venezuela, too. Bill plowed his retirement savings into high-yielding bonds issued by the Venezuelan government. And why not? Bill got much more interest on those bonds compared to the ones he could have bought here in the United States. In the first year he invested in the Venezuelan bonds, he made over $40,000 in profit!

Bill was so proud of his investment acumen that he had a special baseball cap with “PDV$A” (an acronym for the bonds) embroidered on the front of the cap. Alas, this past September, because of falling oil prices, Bill’s PDV$A bonds lost 37% of their value. Bill who once had admitted that he wasn’t “the smartest guy in the room,” proved it by refinancing his house to buy even more Venezuelan bonds…ouch!

No doubt, Bill’s one-trick pony portfolio is a recipe for financial disaster. A good advisor, however, will allocate your assets so you don’t get hurt. As for that baseball cap? It’s collecting dust in Bill’s bedroom closet.