There’s a lot of concern among investors in the aftermath of President-elect Donald Trump’s victory among. People want to know what will happen with investments in general and with their own specific portfolios too.
What’s next for investors?
The reality is we’ll have a lot of stock market volatility for the next few days. The markets opened down this morning and have lessened the hurt at the time of this writing. You have to expect that it will zig and zag over the next several days.
The reason for the volatility is simple: We knew what we were going to get with Hillary Clinton. However, the effects of a Trump presidency on the economy and business in general is unknown.
Various industries are projecting and they either think Trump will be good or bad….or whatever they happen to think. And then investors are bidding the stocks of certain companies up or down trying to anticipate which ones will separate out as winners or losers.
But that’s all noise. And we will have a few weeks of noise—then things will settle down.
The value of a stock or a fund you own is based on whether those companies grow or shrink, whether they become more profitable or less profitable. The value is also based on the confidence that investors are feeling in the economy in general and how that individual company or fund is doing.
‘I am making zero changes in my investments,’ Clark says. ‘Unless you’re somebody who is laser focused on individual stocks, just take it easy. Don’t worry! And we’ll be back to a traditional market in a few weeks.’
For those of us who have a 401(k), Clark stands pat on his longtime advice:
Be sure to dollar cost average
By making regular contributions monthly in equal amounts, you are doing what’s called ‘dollar cost averaging.’ That’s just a fancy way of saying you’re not trying to time the market. In months that the stock market is going down in value, your money buys more shares. In months that the market is climbing, your money buys a smaller number of shares, but the shares you already own are worth more.
Dollar cost averaging is a way to pace your investing so that you’re buying shares when prices are low, high or in between. Over time, putting money in this way reduces the possibility you will panic and either sell or stop investing; it keeps you steady as you go. And staying in the game makes you more money in the long run.
Diversification is the key
You have to spread your money out to lower your risk. A lot of people make the mistake of taking all their money and putting it into a stable fund or a guaranteed fund. Those options may sound like a sure thing, but they basically tread water.
Clark prefers that you have money in a total stock market index as a ‘go to’ kind of investment. That’s where you own little pieces of thousands of companies. If one sector takes a hit — say, technology stocks, as they did during the ‘dot com’ bust — your whole portfolio isn’t blown to smithereens because you’ve spread your money out across multiple industries.
Sure, diversifying is not as ‘sexy’ as putting all your money into a single company and letting it ride. But investments should be about long-term security, not the dazzle factor.