Investing in the stock market comes with its risks. No one knows exactly what might trigger a market downturn, or when it might happen.
However, for many investors, there’s growing concern that the policies of President-elect Donald Trump — such as tariffs, government spending cuts, and mass deportations of immigrants — could push the stock market over the edge.
This uncertainty has many wondering how to protect their investments and whether they should make changes to their portfolios.
After the presidential election, many readers reached out with questions about what they should do with their money. Some were thinking about selling all of their stocks, while others were simply looking for advice on how to shield their savings.
While it’s natural to be concerned, it’s important to remember that the stock market often moves in unexpected ways, and the best course of action might not always be to react in fear.
The Stock Market and President Trump
President-elect Trump has shown a strong interest in the performance of the stock market, often seeing it as a reflection of his policies and leadership.
Some experts believe that the stock market’s reaction to his policies could even act as a check on his decisions. However, this doesn’t mean that we should base our investment decisions solely on political changes.
Market volatility is a part of investing, and reacting based on fear can be more harmful than helpful. It’s essential to focus on your long-term goals and ensure that your portfolio is well-positioned to weather any storm, regardless of the political climate.
The Danger of Panic Selling
One of the hardest things for investors to do during uncertain times is to stay calm. Many people have experienced moments in the past when they felt the urge to sell their stocks, especially during times of market volatility. But history has shown that panic selling can lead to significant losses.
For example, during the early days of the coronavirus pandemic, the stock market saw a massive drop. In March 2020, the S&P 500 plunged by 34 percent, and many investors feared the worst.
However, a study by Vanguard found that most people who sold their stocks during this period missed out on the subsequent recovery. The market rebounded by 36 percent, and by the end of 2020, the S&P 500 had gained 16 percent. Investors who had stayed the course saw significant gains in the years that followed.
A study by Vanguard also showed how different actions taken by three hypothetical retirees during this time could lead to dramatically different outcomes.
Those who remained invested saw their portfolios grow by almost 50 percent. Meanwhile, those who sold their stocks at the market’s lowest point missed out on these gains, leaving their portfolios worth much less.
The Lesson: Stick to Your Plan
In times of market turmoil, it’s easy to feel like making drastic changes is the right move. But for most investors, staying invested is usually the best course of action. It’s important to keep a long-term perspective and avoid reacting to short-term market movements.
If you find that the current market conditions are making you uneasy, it’s a good time to revisit your investment strategy. For instance, check to see if your stock-to-bond ratio is still aligned with your goals.
Market movements may have caused your allocation to drift, leaving you with more risk than you initially planned for. If that’s the case, you may want to rebalance your portfolio to return to your desired mix.
If you’re nearing retirement or have specific financial goals, consider building up a cash reserve to provide a buffer against market fluctuations. Financial planners recommend having at least a year’s worth of living expenses in cash, especially for retirees, as it can help reduce stress during times of market downturns.
Look at the Big Picture
Instead of focusing on short-term market movements, it’s important to take a step back and assess your long-term financial goals. Talk to a financial advisor to make sure your investments are on track to meet your objectives. They can help you navigate the challenges of market uncertainty while staying focused on the bigger picture.
Additionally, if you’re saving for something specific like a child’s college education, take the time to review your savings plan.
College savings accounts, such as 529 plans, often have target-date funds, which adjust the mix of stocks and bonds as your child’s enrollment date approaches. Understanding the risk levels of your investments will help you make informed decisions about your future.
In conclusion, while the stock market’s uncertainty can be unsettling, acting out of fear often leads to more harm than good. By sticking to your long-term strategy, ensuring your portfolio is balanced, and consulting with a professional if needed, you can better weather whatever challenges come your way in 2024.
