By Guest Writer, Craig Martin
Your real goal for your investment portfolio can be easily thwarted by public predictions of the future. Here is what leading predictions in November were telling us before voters elected Donald Trump as our president:
“As the historic 2016 U.S. presidential election approaches, major Wall Street analysts agree that the S&P 500 will likely sell off if Donald Trump wins, and at least hold gains if Hillary Clinton wins.” — CNBC
“We believe that if Trump wins, markets are likely to fall further and not bounce back quickly as they did following Brexit, where the United Kingdom voted to leave the EU.” — J.P. Morgan
“The S&P 500 could potentially fall 11 to 13 percent if Trump wins the election.” — Barclays
If you sold out last year using this advice, you probably now regret it, since we have actually seen more than a 6% RISE in the markets since November’s election. Even if you did not change your investments, reading those headlines probably had you pretty worried about your stock market investments. Either way, you suffered emotional stress, if not outright fear, over your money. Investors are constantly looking to make the right choice for their financial future, and ominous predictions from the media can be difficult to ignore.
Since the “best” predictors in the business are wrong most of the time, one solution for a prudent investor is to never listen to them. But, of course, you can’t count on them always being wrong either. Trying to avoid investment mistakes is like trying to avoid bad weather – how do you know when to trust the weather man’s prediction when he never seems to get it right?
Thankfully, there is a way to invest confidently and live your life with peace of mind. The secret is to build a portfolio with effective diversification. Make it your new goal to invest in different asset classes besides stocks, so when the public market does something scary, you can bet the rest of your portfolio is still doing well. This strategy also ensures that your total portfolio will have much less price volatility than it would with any one ingredient.
This little secret is not exactly “breaking news” either. Nobel Laureate, Harry Markowitz, proved to us many years ago that mixing dissimilar price-movement asset classes will produce a portfolio with the least volatility, while still earning competitive returns.
At The Family Wealth Consulting Group, our firm has helped clients effectively diversify their portfolios usingmany asset classes which exhibit dissimilar price movement. The result for them is peace of mind, regardless of what the markets are doing. Our continued recommendation to clients is that diversification is your only safety. With our help, clients diversify their funds by combining stock investments with many different alternative investments.
At InvestX: Shortcuts to Savvy Investing on March 11th, Craig will discuss in more detail how volatility in your investments can rob your portfolio of return and how to maximize your spendable income during retirement while still maintaining confidence that you won’t outlive your income. For more information about InvestX, please contact us at 775-297-4970 or Stacy@HughesCapital.com.