How your portfolio should react to the economic uncertainty surrounding Trump
Prepare for volatility, financial planner says
While stock markets have been surprisingly resilient following the victory of U.S. president-elect Donald Trump, investors are still anxiously wondering what to expect with their portfolios in the weeks and months to come. Here are five considerations investors should take into account as they ponder how to react to Trump's historic win.
Don't act rashly
"You shouldn't have a knee-jerk reaction to anything when it comes to investments," says Jason Heath, a fee-only financial planner with Objective Financial Partners in Toronto.
While stock markets have remained relatively stable in the wake of Trump's victory, Heath says investors who sold their stocks following the sharp market declines after the Brexit panic in June — when Britain unexpectedly voted to leave the European Union in June — paid a dear price when markets rebounded days later. A similar scenario occurred following the 2008-09 financial crisis when stocks sold off significantly but later rebounded, albeit more slowly.
Review your financial plan
During times of economic turbulence, always make sure your financial plan is up to date. That means having clearly defined investment goals and a portfolio that has been designed to help you reach them, says Marc Lamontagne, a certified financial planner with Ottawa fee-based investment firm Ryan Lamontagne Inc.
A properly constructed portfolio should take into account your savings goal, risk tolerance and time horizon, which helps you select the right diversified mix of stocks and bonds.
Stick to your strategy
Predicting the market in the short term is impossible, which is why it's important to focus on fundamentals. Heath says that when investors experience a big movement in stock markets, either upwards or downwards, the best strategy is to focus on rebalancing between asset classes as opposed of trying to predict where the markets are heading.
"Everyone has access to the same information more or less. It's not like somebody can outsmart somebody else," he says. "Information travels so quickly that by the time you read something about stocks, currencies or commodities, markets generally have already responded."
Look for buying opportunities
How financial markets have responded to Trump's victory shows that they're quite resilient right now, says Lamontagne. "So if you're someone whose been sitting in cash," he says, "maybe it's a good time to invest." Heath adds that if U.S. stocks do wind up shedding 10 per cent of their value in the coming weeks, investors might view it as a buying opportunity.
Make peace with market volatility
Heath says investors should expect to continue to deal with global market uncertainty over the next six months, as U.S. stock markets represent about 50 per cent of the world's stock market. "I think one of the big challenges for the U.S. economy and the U.S. stock market is going to be that a lot of the proposals Mr. Trump has made are going to cause instability and big changes," he says. "Time will tell."