I’ve been asked regularly what I believe the stock market will do now that it is at an all-time high. At a recent workshop, I was asked; “What are you doing to prepare for a market downturn”? My answer seemed surprising to the audience. My answer was; “Nothing”.
How do you prepare for an uncertain event with uncertain timing? How do you predict the future when it is impossible? Thorough and comprehensive planning with an experienced professional is the solution. A market downturn of 25%, or an upturn of 25%, doesn’t change your personal values and objectives. If your lifestyle would be negatively affected by a 25% downturn in the stock market, then you have not planned well. Every person gets to decide whether they want to have the possibility of losing money and how much they might potentially lose. This is a personal investment choice.
Consider this; Imagine if I could predict the future and one year ago I told you with absolute certainty, Donald Trump will win the election. Many of you, Liberal or Conservative, would have likely took money out of the stock market fearful of great uncertainty. If you took money out of the stock market, then you missed one of the best stock market years in memory. If I “prepared for the market downturn” a year ago, what should the preparation have been? The correct answer in hindsight is absolutely “nothing”! This is the same answer I will give to that question every time it is asked in the future.
For fun, I am including an article I wrote last fall just before the election. The underlined sentence was underlined when I originally wrote the article. Specifically, “election should have zero impact on your investment decisions and financial planning”.
From August 2016 Newsletter:
Articles on industry regulation can be tiresome so let’s cover a lighter subject: presidential
politics! We are seeing the best our country has to offer as the focus has been on the issues that
matter most to you and our great country. Both Donald Trump and Hilary Clinton have
demonstrated maturity, integrity, transparency and especially decorum as they contrast their
respective positions in hopes of leading the free world beginning next January.
Yes, my tongue is welded in my cheek. To call this election cycle the worst ever is a huyuuuuge
understatement. As my grandfather said about certain people, I’d like to buy Hilary or Donald
for what they’re worth and sell them for what they think they’re worth! As someone who
always looks for the silver lining, I definitely support disrupting the status quo whether its
Uber, Airbnb, technology or yes even political processes. For too long our government has
failed us, yet grown in size. As an entrepreneur, I refuse to accept this as inevitable. The silver
lining may be that both parties need to hit rock bottom before reassessing and changing their
future approach. A guy can hope for change (again)!
Here’s the real reason I’m writing this article. While both major parties have nominated easily
the weakest candidates each party has nominated in my adult lifetime, the nominations and
subsequent election should have zero impact on your investment decisions and financial
planning. Every four years, my financial planning peers and I get asked how we think the
election will affect the markets? I have absolutely no idea whatsoever and neither does any
other person on the planet. People often use the election as an excuse for inaction on decisionmaking
not recognizing the irony that inaction is a decision!
In 2016, the stock market performed significantly better as the primary processes became
clearer that Donald and Hilary were the nominees. The momentum has continued. Was this
predictable? Of course not! Government policy certainly impacts the economy but who can
trust either candidate to do what they say they will do if elected? I have strong opinions
regarding what policies should be enacted in order to lead to greater long term prosperity for
Americans but have no idea what either candidate would do as president or the resulting
impact on the stock market.
I invite you to chuckle a bit to keep from crying. I also know this article won’t prevent many
people from asking me how I think the stock market will react to the election, but don’t blame
me for trying! Strategic decisions are strategic and not subject to headlines and short term
emotions. I hope this article gave you a smile, now go and have a beautiful and profitable September!