On Jan. 20, Donald Trump will be inaugurated as the 45th president of the United States. Now that the turbulent election cycle is over, people are asking me what changes they should make to their portfolios. Mr. Trump's fans are enthusiastic and ready to bet big on American stocks, but others are anxious and want out of the stock market altogether.
A few months ago, I wrote about what to do during this crazy presidential campaign. My advice back then was to stick to the plan during the election and afterward. Admittedly, I had no idea just how polarizing things would ultimately become, yet I'm still sticking to my plan of a balanced portfolio of stock, bond and money market investments, including bank CDs.
Why I'm changing nothing
First of all, there are so many unknowns at this point. What laws will be passed? Will taxes be changed? Will trade barriers be established? What will happen to health care insurance? I not only don't know the answers to these questions, but when I do know them, they will already have been priced into the market.
Looking for clues from the past, from 1945 to 2015, the S&P 500 has gained about 6.7 percent annually during a Republican presidency, compared with a 9.7 percent gain under a Democratic president, according to Sam Stovall, chief investment strategist at CFRA Research. This does not, however, establish cause and effect. Excluding the past two presidents from this data, the market has risen, on average, about 9 percent a year under both Democrats and Republicans.
But enough about what I don't know; here's what I do know. Capitalism has survived some pretty dysfunctional politics in the past and is likely to survive anything the future will throw at us. Incentives to create new products and services that will solve problems and improve our lives will continue. That will fuel job creation.
Further, I also know that betting on how we think the stock market will do over the next year or even four years is a loser's game. I've observed that moving in and out of the stock market for any reason tends to result in buying high and selling low. I've told my clients for months that, regardless of who wins the election, they should stick to their long-term investing plan.
See also: Investing should be simple
So whether or not you are pleased with Mr. Trump's victory, I offer the same advice: Stick to a plan of a balanced portfolio. Don't buy a stock just because you think it will do well under Mr. Trump, unless you think you know something the market doesn't already know.
Irrespective of who won the election, the nation will remain divided, and the political system will remain at loggerheads. But I can say without a shadow of a doubt that capitalism will survive. To borrow a quote from John C. Bogle, the founder of Vanguard, "Don't do something. Just stand there." That's been my plan all through the madness of the election, and my suggestion is to make it your plan, too.
Allan Roth is the founder of Wealth Logic, an hourly based financial planning firm in Colorado Springs, Colo. He has taught investing and finance at universities and written for Money magazine, the Wall Street Journal and others. His contributions aren't meant to convey specific investment advice.
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