The Trump stock market rally has presented a formidable power of strength, but there are reasons to be uncomfortable.
Potential problems are not gushing out of the economy or the market itself, but from the world of politics. This raises tickling questions for millions of people who rely on the stock market to secure their retirement, buy a home or educate their children.
After all, history shows that stocks have provided the best returns of all publicly available asset classes for long periods, and conventional wisdom is that they will continue to do so, regardless of transitional things such as presidential elections or even wars and The recessions.
But Mr. Trump is making a lot of nervous people. “The risks are rising rapidly,” wrote Brad McMillan, investment officer at Commonwealth Financial Network in Waltham, Mass., At the end of January. “Politics remains the focus here, not the economy.”
At present there are many political controversies. Mr Trump’s policies on immigration, oil, financial deregulation, Mexico, NATO, Russia, China and Australia have pushed all the rage. Make your choice. Suppose you are worried – and wonder if your money is safe.
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Based on the long history of the stock market, it is possible to conclude that Mr. Trump’s behavior does not matter. This, however, requires a cosmic perspective and assumes that history is relevant in the future.
For a truly long-term investor, the overall stock market has not been really risky since 1926. But this statement is reasonable only with some caveat very important. You have to have a diversified portfolio, and you have to be willing to absorb huge short-term paper losses and keep your portfolio, come what you can.
If it had been able to do all this for at least 15 years, it would have been nice because, for any period of 15 years since 1926, the stock market has never declined, said Sebastien Page, asset allocation asset for T. Rowe Price . It’s great if you do not need your money for 15-year-olds.
But of course the market has declined – and with a devastating impact – in many calendar years within those 15 years. Only in 2008, the index of 500 Standard & Poor indexes fell by 38.5%. In 2002, it fell 23.4 percent. And it dropped by two figures in the 2001 and 2000 calendar.
That is why it has been difficult to remain calm about stocks – and because pure stock companies have been dangerous for people who actually need to use their own money. Globally diversified portfolios containing titles and securities make more sense for most people, said Mr. Page.
In 2008, for example, the worst year in the recent history of the market, portfolios diversified with stocks and bonds have generally improved. A portfolio that includes 60 percent bonds and 40 percent bonds, exemplified by the Vanguard Balanced Index Fund, fell only 22.2 percent. And a more conservative portfolio with bonds of a third and two thirds bonds, such as the Vanguard Wellesley Income Fund, fell only 9.8%.
These numbers provide a convincing argument based on the history of diversification and long-term investment, despite concerns that may arise on the current state of American politics.
“Our best advice is to stay diversified, stay on the course and remember the role of the actions in your portfolio,” said Joe Davis, chief economist of the world and head of the investment strategy team at Vanguard.
For example, a 20-year-old with money that will not need it for 50 years, a portfolio containing only diversified stock investments can make sense. For a retirement of 70 years, a large amount of diversified and high quality bonds can be intelligent, even if bond yields may be forced or negative, with interest rates that may increase from current low levels. (Bonds and interest rates move in opposite directions, while higher rates mean more income, also imply lower bond prices).
In a stock market downturn, high quality bonds are likely to work well, Davis said. “The bonds have been negatively related to the stock market, and this is very valuable,” he said.
On the basis of the past, prospects for the next five or ten years are not marvelous. Valuation measures for the shares and bonds suggest that yields