One lesson that was driven home again during the recent 24-hour news cycle surrounding the election was, "Don't believe everything you read and hear."
Regardless of your political persuasion, what you hear on the campaign trail often differs markedly from what happens after the election. It's similar in the financial markets. Scary headlines one day could turn into "the markets are on their way to new highs" the next day.
The recent election night is a great example of how things can turn on a dime. When it became clear that Donald Trump was performing much better than the polls had suggested, the financial futures market, which trades pretty much 24 hours a day, started dropping rapidly. The markets were not expecting Mr. Trump to win. But then before the regular trading markets opened up on Wednesday morning, the numbers had completely turned around and the markets opened higher.
The initial knee-jerk reaction to the election in the financial markets was negative, but less than 12 hours later, it had turned positive.
I always stress to our clients not to make snap judgments when it comes to your investing and your financial plan. The 24-hour news cycle encourages people to make snap judgments because it's designed to create scary headlines that drive viewers and increase advertising. We do our best at Keen Wealth Advisors to be a voice of reason during these headline-driven times.
In today's episode, we take a look at how to deal with the 24-hour news cycle and discuss how Donald Trump's presidency may affect your portfolio and your financial future.
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Insights From Today's Podcast
1. Don't change your plan overnight based on what you see or hear on TV.
I don't like the 24-hour news cycle. It really doesn't help people. Unfortunately, human nature says we should be acting or reacting to all this. My advice is, rather than making snap judgments, we should look at the big picture and maintain a longer-term perspective. The knee-jerk reaction in the futures market when it appeared Mr. Trump might win has now given way to recent new record highs in the U.S. stock market. Those who made snap judgments on election night might be regretting it now.
2. Always come back to, "What are corporate earnings doing?"
No matter what's happening in the 24-hour news cycle, I always go back to looking at what's happening to corporate earnings. I want to know whether corporate earnings are rising or falling. When I look at the health of the economy and the markets, I want to make sure that the earnings are there because that's usually where the market takes its queue from. Short-term, the daily movement of the markets tend to represent the collective psychosis of all the participants that day. Long-term, the markets reflect the underlying earnings of the companies. Mr. Trump's policies, although still evolving, may be a net positive for corporate earnings. For example, reducing personal and corporate taxes may lead to higher consumer spending and higher corporate profits.
3. There's a difference between "timing the market" and making periodic allocation adjustments to clients' portfolios.
People who "time the market" tend to make big portfolio shifts and spend some time sitting in all cash and other times fully invested. One difficulty in that is you have to be right twice--once when you get out of the market and a second time when you get back in. If an investor gets caught up in the 24-hour news cycle, it's easy to get scared into thinking the world is coming to an end and make a bad, emotion-based decision to exit the market. By contrast, we try to be disciplined about building and maintaining our portfolios. We try to create balanced portfolios that support our client's lifestyle and their long-term plan. And then we make longer-term adjustments to the portfolio or rebalance the portfolio as opportunities arise.
4. Warren Buffett, one of the world's greatest investors, said Clinton or Trump as president doesn't really affect the stock market in the long run.Shortly after the election, Warren Buffett was interviewed by CNN. He said, "The stock market will be higher 10, 20, 30 years from now and it would have been with Hillary and it would have been with Trump." When he was asked about all these predictions that the market will tank if Trump gets elected, Buffett said, "They're silly." It's a fascinating interview. You can watch it in full below.
5. Even when you retire, a portion of your money might remain invested for 20 to 30 years.
When folks invest money here at Keen Wealth Advisors, I make a distinction between short-term and long-term money. If you need that money back within five years to live on, to me, that's short-term money and should be invested very conservatively. When I talk about long-term investing, I mean 10 to 30 years, that kind of timeframe. What's interesting is when a new client comes in at age 63 and says, we don't think we have a 20 - 30 year time horizon, well, if they're in good health, they may actually have that long. So in that case, it might make sense for some of their money to be invested longer-term because they may not need it for another 20 years. Think of it as a bucket or a sleeve of investments that may not be needed until down the road a ways. Clearly, that kind of bucket should not be swayed by the 24-hour news cycle.
Bill Keen on the 24-hour news cycle...
We have to remember that "fear sells." Just don't let it interfere with making smart, long-term financial decisions.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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