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.

How Will Election 2016 Affect the Stock Market?

With Election Day almost (finally!) here, the most common worry I hear from many of my clients is, “How will the presidential election affect the markets?”

Market volatility before and after the election is a legitimate concern. For sure, this hasn’t been a typical election, and a victory for either party could affect the markets. Markets tend to react to good news and bad news. In the short-term, the stock market can be emotional and illogical. That’s because people drive markets and people– especially when investing their money–can be emotional and illogical.

Dimensional Fund Advisors (DFA) recently published a new study, “Presidential Elections and the Stock Market,” and included the following exhibit of the growth of a dollar invested in the S&P 500* over nine decades (since 1926) and 15 presidencies (from Coolidge to Obama). The study examined the growth of one dollar from 1926 through the end of June 2016. The outcome shows that through Democratic and Republican administrations, the stock market consistently grew, regardless of which party was in power. At times, though, the market was down or flat, too.

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The other part of the study delved into shorter periods of returns previous and subsequent to presidential elections. Again the data showed there to be little or no differences compared to market returns of non-presidential election years. The takeaway: Trying to make an investment decision based on the outcome of an election was unlikely to generate any excess return for an investor. Any positive outcome based on using such a strategy is likely to be the result of random luck. At worst, it can lead to costly mistakes. We can’t predict the economy, and we for sure can’t outguess the markets.

You may be thinking, however, that this time is different. No doubt, with a 24/7 news cycle and nonstop election coverage, it’s easy to get on the roller coaster with the Wall Street hype and media pundits. Turn off your television sets and don’t panic. If history is any guide (and in my opinion, it’s the only guide we have), the outcome of this election should have little impact on the markets in the long-term.

*The S&P 500 Index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. Investors cannot invest directly in an index.

Disclosure: This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell this security. This blog contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Information was based on sources we deem to be reliable, but we make no representations as to its accuracy. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Real Estate vs. Stocks: What Trump Can Teach Us about Investing

Is real estate or the stock market a better investment? Of course, this is an apples-to-oranges comparison, but the argument never ceases.

Many pure real estate investors will rarely, if ever, touch a stock or even a bond because they prefer tangible investments and the steady income that real estate can produce. Investors like myself who favor the stock market — and never want to be awakened in the middle of the night over a leaky roof — stay away from owning rental property. Both sides argue that theirs is the better way to invest.

Let’s look at one of the best-known businessmen of our time, Donald Trump, to see how his wealth grew with real estate. As columnist Joe Nocera wrote in The New York Times last week, Trump’s record is mixed. The son of a wealthy real estate developer, Trump was often bailed out by his family, and there were several times when Trump properties declared or came close to declaring bankruptcy. These setbacks demonstrate how challenging real estate investing can be, even for those very experienced in the field.

It’s also risky. As Trump grew older (and wiser), he became more risk averse. Instead of building new properties, he managed them, licensed his name and became a reality TV star.

Today Trump claims to be worth $8 billion, a lot of money. But what if he had put his money in the stock market rather than real estate. Nocera looked back at Trump’s net worth in 1988 and calculated that if Trump had invested that money in the S&P 500, he would be worth $13 billion now. So, he suggests that Trump’s real estate investmentscost him $5 billion.

But who are we kidding? If you had $8 billion, would you really care about having $5 billion more? I certainly wouldn’t. And you don’t become “The Donald” by investing in the boring old stock market.

So whether real estate or the stock market is a better investment is still not easy to answer. Perhaps the biggest distinction between these two investments is that stocks are more volatile, which is a key reason for their superior returns. On the other hand, real estate is costly to maintain, as one of my client’s found out recently when the rental property she inherited needed nearly $10,000 in repairs.

Some of my smartest clients own real estate, stocks and bonds. They know that each investment will rise and fall, but they are confident that they will do well in the long term. And for a person like me, who doesn’t want to own physical properties, there are ways to invest in real estate through the stock market, an attractive alternative. You can own shares of office parks, retail shopping centers and health care facilities — and never lift a hammer.

This article was originally published on NerdWallet.com http://www.nerdwallet.com/blog/finance/advisorvoices/real-estate-stocks-trump-teach-investing/

Running a Business and Running an Economy are Two Different Things

Two of the most newsmaking candidates running for the office of President of the United States are businesspeople—Donald Trump and Carly Fiorina.  They are number one and number two, respectively, in a recent poll.

Fiorina’s numbers surged in the polls after the September 16 debate.  She had done her homework and came prepared.  Moreover, she may even have gained more support from some women after Trump momentarily turned the debate into one of his pageants, commenting on Fiorina’s looks.  It was a cringe-worthy moment and one that a man would never have to endure.  Perhaps the best moment of the debate, though, was when these two businesspeople took jabs at the other’s business record.

In his September 22 New York Times column “Trump and Fiorina’s Snake Oil,” Joe Nocera took a closer look at their business records, and as his headline suggests, both are peddling something of no real value when they tout their leadership credentials.

We all know that Fiorina was fired (and for good reason) by her board of directors when she was CEO of Hewlett-Packard.  Nocera writes:  “The company’s stock price dropped more than 50 percent during her tenure, compared to a 7 percent drop in the S&P 500.  And net earnings dropped to $2.4 billion from $3.1 billion during that same time.  The Compaq merger, meanwhile, was a misguided fiasco; today, virtually all remnants of it have disappeared from HP.”

Nocera goes on comparing Trump to a modern-day P.T. Barnum writing about the numerous times when Trump had to bailed out by his father and siblings.  He even had to be put on a budget and certainly wouldn’t be where he is today without his father’s money.  Only more recently, has Trump gotten wiser and more risk averse; he has stopped building properties and instead, manages them.  Today, he mostly licenses his name on properties that he doesn’t own.

Trump claims to be worth $8 billion which is a ton of money.  However, Nocera writes, “if in 1988, he had simply put his money in a stock index fund, it would be worth $13 billion today.”  In effect, Trump’s business “expertise” cost him $5 billion.

Despite these facts, Trump and Fiorina will continue to defend their business records and say whatever they have to to get elected.  What they fail to understand and what so many voters fail to understand, is that running a business and running an economy are two very different things.

Running a business is about profit.  Running a government balances providing services within a budget while regulating an economy.  For an economy to be described as successful, it should be inclusive and sustainable.  A successful economy is one where conditions allow anyone willing to participate to do so at their full potential.  It’s about sustaining and creating which are essential to the common good.

Ironically, Trump & Fiorina are seeking the highest office in the land derived from their “success” as businesspeople, and they’ll continue peddling their snake oil as long as the American people buy into it.  But neither seems to get that leading a corporation does not qualify you to lead the free world.