Like most Americans, you’re likely hanging on every word from our nation’s capital.
Every week, sometimes every day, there seems to be some kind of earthshaking announcement, some legislation ahead, some kind of change that will affect your life.
Tax reform is the latest. Amazingly, trade also is on the table, plus perhaps a war in Asia. Immigration, healthcare, the list goes on and on.
It’s very hard not to pay attention. After all, most of this news flow seems like it will directly affect your life and, by extension, your financial decisions. Investments might need to change, for one.
Hold that thought. Now dismiss it. The fact is, nothing is going to happen fast. This is Washington, after all. Presidents make a lot of short-run executive actions (they all do) that seem important, but the real money and power rests with Congress.
Any kind of decision that actually might affect most Americans and their wallets will take months to legislate. Many voices will be part of that process, and the end result may not appear to be anything like what you might presume.
That’s just how government works, slowly, with great compromise along the way. Nothing about the current or future occupant of the White House changes that calculation.
Secondly, and this is important, your investments are largely unaffected by government policies — if you invest prudently and diversify.
It’s certainly true that there will be winners and losers in the economy one year from now. It’s arguable, of course, that changes in how government regulates (or doesn’t) will affect some corporate bottom lines.
It’s just as true that earnings from stocks react to much more than the pronouncements of a single man, however important his title. Economies tend to grow irrespective of government, or they don’t.
Consumer spending matters a lot. Global trade flows matter a lot. Currency strength or weakness affects our wallet, in terms of both imports and exports.
Housing values rise or stagnate. Consumer borrowing moves in relation to the cost of credit and needs. All of these things are interrelated and impossible to forecast.
The fact is, stocks rise in value as earnings rise. Earning rise as economies grow. That’s why owning stocks as an asset class is more important than picking individual stocks.
Owning the entire market in an index fund virtually eliminates the risk of picking the “wrong” stock at the “wrong” time. Diversification washes away doubts about timing and selection and gives you just plain growth.
From there, it’s relatively easy to invest for retirement. Just own the percentage of stocks vs. bonds and other assets that makes you most comfortable. If you don’t mind it when the markets dip, own more.
If a decline in stocks keeps you up at night, own a bit less. But don’t worry about the government and don’t try to get ahead of whatever headlines pops out of D.C. next.
That way lies madness, and almost certainly lower returns.
MarketRiders, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.