This article explores the impact of President Trump's policies on the stock and bond markets and offers advice on how to navigate these uncertain times through asset allocation. The author emphasizes the importance of long-term investing strategies and the principles of diversification.
The chief business of the American people is business. That declaration by Calvin Coolidge has been shortened and simplified since that Republican president uttered it before an assembly of newspaper editors a century ago. But the notion that the business of America is business was on conspicuous display at President Donald Trump’s inauguration. It may be the chief reason for heightened optimism about the stock and bond market s.
Plenty of worried readers have been writing in — asking how, in broad strokes, they ought to deploy their money during the second Trump presidency. It is both a pressing problem and an eternal quandary, one that, in investing jargon, is labeled asset allocation. How do you divide your money to get the most reward for the least risk? The new administration is presenting investors with outsize rewards and monumental risks right from the start. Certainly, the Trump inauguration is conveying conflicting messages and meanings. In his long formal inauguration speech in the Capitol Rotunda and then in a stream of well-publicized remarks as well as a flurry of executive orders, Trump has touched on many of his favorite and most contentious subjects. They include declarations of two states of emergency, enabling the deployment of the military for mass deportations and bolstering presidential authority to promote fossil fuels. Trump also promised to impose tariffs on China, Mexico, Canada and Europe; seize the Panama Canal; buy Greenland from Denmark; place an American flag on Mars; and, generally, fulfill America’s “manifest destiny.” Depending on your personal politics, these initiatives may seem profoundly unsettling — or refreshingly disruptive. But in Trump’s meandering pronouncements, one thread was clear and consistent. By giving pride of place at his inauguration to a coterie of rich tech executives — Elon Musk of Tesla, Jeff Bezos of Amazon, Mark Zuckerberg of Meta, Sundar Pichai of Google and Tim Cook of Apple stood in front of Cabinet nominees like Robert F. Kennedy Jr. — the Trump team emphasized its relentless commitment to the pursuit of profit. Big business has an inside track in the second Trump presidency, and those with a stake in those businesses have reason to rejoice. I’m not jumping on any bandwagon. Based mainly on the fact that the United States has survived for nearly 250 years and that its economy has surmounted countless setbacks and managed to prosper, my own view is that it still makes sense for individual investors to rely on the classic principles that have worked for decades. I’ve been sketching the outlines of what academic finance tells us about investing over many years, but at a fraught moment like this, it’s worth a straightforward review. So here are core elements of what I think everyone needs to know about asset allocation.Great fortunes have already been made since the Trump victory. One beneficiary is Trump’s new sidekick and well-heeled supporter, Elon Musk, whose Tesla shares have risen more than 60% from Election Day through Thursday. Another is the Trump family itself, whose new cryptocurrency has quickly become one of the world’s most valuable speculative digital ventures. If you have piggybacked on these bonanzas and reaped magnificent gains, good for you. In a small sense, I suppose I have, too. I don’t own cryptocurrency directly, or the shares of any individual company’s stocks or bonds, but I’ve got stakes through low-cost global stock and bond index funds. Even cryptocurrency is included in my holdings, indirectly, through companies such as MicroStrategy and Coinbase. But I’m not making short-term bets of any kind and, as an investor, I’m not trying to figure out what will rise or fall over the next four years. Instead, I’ve placed permanent wagers on the overall markets through index funds, which don’t require me to pick individual stocks or bonds or monitor their performance closely. This is the approach I’d take under any president. Most academic studies have found that simply remaining in the markets over the long haul has been an excellent approach — one that few professional traders can beat.There’s always risk in investing. But in the sense used by Benjamin Graham, the Columbia University finance professor who was Warren Buffett’s mentor, investing is a long-term and serious endeavor. It’s as different from speculation as value is from price. In investing, you are not making quick bets. Instead, you are expecting that over many years, the growing, underlying value of your holdings will ultimately be reflected in their ephemeral market prices. This underlying value is supposed to protect you against loss, though over short periods, when markets plunge, even the shares of solid companies may fall sharply in price. Squaring that circle — obtaining the greatest reward for the least amount of risk you are able to bear — is what diversified asset allocation seeks to accomplish
ASSET ALLOCATION INVESTING TRUMP ADMINISTRATION STOCK MARKET BOND MARKET LONG TERM INVESTING RISK MANAGEMENT DIVERSIFICATION FINANCIAL ADVICE
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