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Pam Abraham: How to Invest in the Age of Trump

After the Great Recession and market decline of the last decade, the past seven years have provided a steadily rising stock market with very little volatility.

Despite the 2016 election of the most unconventional President of modern times, investors have been happy as they watched their investments grow.   Economists and business leaders say that President Trump’s economic and regulatory policies have contributed to a much healthier economy and rising stock market.  It seems that despite the constant Trump tweets, his put-America-first nationalism, the tilt toward tariffs, fights with the press, the Mueller investigation, and other assorted acts of political un-correctness, there’s been no real harm.

Until recently.  Added to the market’s worry list is the loss of another “adult in the room” (General Mattis), the possible firing of the Federal Reserve chairman and a government shut-down.  So after years of a steadily rising stock market, we’ve seen an October swoon turn into one of the biggest down quarters for the S&P 500 in the last 89 years. As of this writing (late December), the index is down 11.5% year-to-date and a full 20% from its all-time high earlier this year.

So has President Trump’s persona and policies finally come home to roost?  Will this swoon turn into a big bear market, the kind that often predates an actual recession?  What is an investor to do?

Some experts say, only slightly tongue in cheek, the easy answer is to block your access to all media. Never listen to cable news–even CNBC or Bloomberg and especially not Fox, CNN or MSNBC.  Don’t follow news on social media.  And never read the Washington Post or the New York Times!  It is true that the quantity and quality of news—most of it negative relating to the President, his policies, the market—are the main reason for the recent increased volatility.   They say stick to your long-term investment plan which hopefully reflects your risk profile and financial goals.

However, avoidance and hope are not really a plan.  So how to cope?

Let’s first postulate that despite how different the age of Trump feels and how damaging it may turn out to be for the markets, this kind of  turmoil and volatility is not any different or worse today than in the past.

Let’s remember all the previous near-disasters our country and markets have endured.  The decade of the 70s was no picnic—there was Watergate and Nixon’s resignation, OPEC quadrupled oil prices, the stock market fell almost 50% in one year, stagflation took hold and interest rates skyrocketed.  By 1981, the country had the highest interest rates ever with the prime rate hitting 22%.  The Federal Reserve’s action to fix the mess brought on the worst recession since the Great Depression.

Yet, the stock market bottomed in August 1982, which began the country’s greatest secular bull market lasting 18 years.

But of course there were a few bumps along the way, like the crash of 1987 (market down 37%), the early 90’s recession (market down 20% in ’90), and the collapse of the savings and loan industry that followed.  There were even a couple of quickee market drops of 11% in 1997 and 19% in 1998 when a big hedge fund almost brought down Wall Street and Russia defaulted on its debt.

Still the birth of the internet and the fear that Y2K would shut down all computers and networks led to a late 90’s boom in the stock market which lasted until March 2000 when the indexes reached all-time highs.

That was followed by the bursting of the tech stock bubble, which wiped out many newly minted IPOs and even brought quality tech giants like Microsoft and Intel to their knees.

And let’s not forget the horrific September 11, 2001 attacks which destroyed so many lives and much of New York City’s financial district.  With planes not flying, U.S. commerce came to a stand-still.  There was almost no GDP for four weeks.  The markets tanked 30% in 2001 and 34% in 2002.  We began a long and some say fruitless war in Iraq and Afghanistan that eventually cost the U.S. more than a trillion dollars.

By mid-2003, the markets were rising again along with commercial and residential real estate.  But then the U.S. economy experienced the bursting of another bubble.  This time housing prices. The markets fell 40% in 2008 as the entire U.S. financial industry nearly imploded along with most of the developed world’s banks and markets.   To this day, many Americans don’t realize how close the U.S. came to another Great Depression, and how vital it was for the government to bail out Wall Street in order to save Main Street and the entire economy from disaster.

My point in walking down memory lane is to remind you that we’ve seen bad times before.  And maybe the issues causing the recent market declines aren’t so bad by comparison.  Unpredictable Presidential tweets and trying to achieve fairer trade with China really don’t rank high on the disaster scale.  The third reason some investors fear impending doom—the Federal Reserve raising interest rates—actually can be viewed in a positive light.  It’s only because the economy is strong again that the Fed can finally push interest rates back to something approaching normal.

The reasons causing markets to gyrate are always different, but history has shown that patience will prove worthwhile.  Americans will figure a way out of the mess and the markets will rebound.

In the meantime, here’s the way to maintain your cool—do not react to every headline and do stick to your investment plan.  If you don’t have a plan, find a qualified investment advisor to help you.   Going it alone is usually not the best idea.  You need a throomer!  Someone whose vast experience makes her immune to headlines and the vagaries of the markets, someone whose fiduciary responsibility is to do what’s best for you.


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