Should People be Worried About the Results of This Election?

Now that we know the results of the election, what should you do with your investments? In my opinion, if you were positioned appropriately before the election, it makes sense to retain that same strategy during the transition into the new administration. 

On the other hand, this change may also be a good time to step back and review your overall financial picture. Have your long-term goals changed? Are your investment returns meeting expectations? Reasonable goals, combined with sound planning, can pay dividends regardless of market conditions. According to FINRA (Financial Industry Regulatory Authority), the following 5 steps can help steady your pulse during market downturns and elevate your financial security.

1. Revisit your financial goals.
Set clear, prioritized goals. Good financial goals, tied to a sound long-term financial plan, typically will survive short-term market ups and downs. It is critical that you have a plan that includes annual savings as well as a diversified portfolio based on reasonable returns for the market risk that is appropriate for you.

2. Focus on asset concentration.
Do you have a large position in a particular stock or mutual fund? Significant market movement in that position can illuminate concentration risk, the risk of amplified gains or losses that may occur from having a large portion of your holdings in a particular investment, asset class or market segment relative to your overall portfolio. It’s important to diversify across, and within, the major asset classes to reduce the potential of a significant loss.

3. Focus on your financial security.
Take advantage of day-to-day opportunities to help build your finances for the long term, such as paying your credit-card debt on time and in full, if possible, to avoid paying high interest rates (which are cancerous to your long-term savings plan), and setting aside funds for the unexpected (car repair) or the specific (vacation in Hawaii). If possible, set up automatic contributions; to 401(k) plans, savings accounts and a Roth IRA if you qualify.

4. Understand the impact of higher interest rates.
Yes, the Fed finally started to raise the federal funds rate and might do so again. That will have a positive impact on your savings accounts, but it will likely have a negative impact on your current bond holdings. When interest rates rise, bond prices generally fall. New bonds will have higher interest rates, so it will be better long-term, but you might see a short-term negative impact on the bond portion of your portfolio. Stick with the plan!

5. Protect your money.
Fraud is a growing threat and financial scammers operate in all market conditions. In times of high market volatility, investors may be particularly vulnerable to pitches touting guarantees of “risk-free” returns. Combining a guarantee with a specific amount of money you will make—”this is a safe investment that will earn you $6,000 every quarter”—is a highly effective tactic known as phantom riches. You can avoid fraud by working only with registered investment professionals—use FINRA BrokerCheck (brokercheck.finra.org) to find out if a person is registered to sell securities—and by sticking to your pre-determined financial plan.

These steps are just some of the right things to do when it comes to financial matters. Unfortunately, no one can predict what will happen in the various markets. That is what makes it all work. If we knew what was going to happen, we could devise the perfect plan. So, as an alternative, I suggest you define your goals, develop a plan based on reasonable expectations, maintain a diversified portfolio, periodically monitor it and stick to the plan. Let us know if you would like to have your plan reviewed or, if you don’t have one, we can help you develop something that fits your unique goals and expectations.