St. Augustine Woman's Journal - Educational Resource to the Women of St. Johns County Since 2009

By Rosa Shala
Shala Financial 

Will Your Money Be Safe When the "Trump Bump" Finally Slumps?

 

April 1, 2017 | View PDF



First, let's look at the rally. Since Election Day, all three major market indices have hit new record highs several times. The Dow Jones Industrial Average rose from 18,332 on November 8 to 20,812 on February 28. In that same span of time, the S&P 500 climbed from 2,139 to 2,363, while the Nasdaq went from 5,193 to 5,825. Those are some "yuge" gains, as Trump might say, but remember that the size of a rally isn't always indicative of its strength.

The rally is based mainly on optimism that Trump will be able to make good on his promise to grow the economy by 4 percent a year. Of course, no real impact from his policies has occurred so far. In other words, the positive impact of Trump's policies has already been priced into the market. That means that if and when we do start seeing signs that his promises are coming to fruition and positively effecting the economy, the markets might not climb much higher. They have to let actual growth catch up to the lofty heights they've already reached.

For now, the markets are overinflated and out of whack with current corporate growth rates, and Wall Street is simply waiting for its optimism to be vindicated.

But what if isn't? What if we start seeing signs that Trump's plan isn't viable, or it just takes too long to implement? Could the optimism that has fueled record highs turn into an equally potent level of pessimism that triggers the next major market collapse? If so, the price for buy-and-hold investors is likely to be far more significant than the potential reward. As I've discussed many times, historical evidence suggests that the next major plunge could be as steep as 70 percent, but should be at least 35 percent. How does that compare to the potential 5 to 10 percent additional gain the markets might achieve if Trump delivers?

Does it make sense to hang in there for a gain that small if it means risking a loss that big? I've posed that question before, of course, and illustrated it with this analogy: would you ever play a casino game that paid $10 if you won but cost $35 to $70 if you lost? Probably not.

And, there are other signs that the "Trump Bump" is deceiving. Hard economic data since the election has been hit and miss, at best. At the same time, the 10-Year Treasury yield has stabilized at just under 2.5. That means investors aren't fleeing the bond market and betting only on stocks-which is a clear sign that their optimism is actually cautious despite the hyped-up record highs.

The questions surrounding the "Trump Bump" should be largely irrelevant to investors over 50-provided they have rightly shifted their priorities from growth to protection and income. The truth is everyone wants the same thing from their investments: maximum return with minimum risk. But, maximum return for what purpose? Achieving the right balance depends on investors knowing their retirement goals and understanding which of the following they are investing for: a lump-sum expenditure, maximizing their legacy, or supplemental retirement income. The answer should align with the goals they've identified.

I often find that people unknowingly have retirement goals that are in conflict with their financial strategies. It's because they haven't yet taken the time to really think about their goals or the most sensible options for achieving them. They don't realize that by continuing to invest primarily for capital appreciation, they're not only carrying unnecessary risk, but they're actually investing for the wrong purpose.

Exposing investors who are close to retirement to this kind of helpful information is especially important as media hype surrounding the deceptive and potentially dangerous "Trump Bump" continues.

For a frank and informative discussion on managing the risk in your portfolio, contact the office of Shala Financial at 352-207-7920 or rosashala@shalafinancial.com, or register for their next workshop.

Upcoming Workshops:

THE 10 MOST COMMON MISTAKES RETIREES MAKE WITH THEIR FINANCES

Register for Free Workshop:

Tuesday, April 25, 2017 • 6:45PM Anastasia Island

Thursday, May 25, 2017 • 6:00PM Anastasia Island

Wednesday, April 26, 2017 • 4:00PM Main Library

Wednesday, May 24, 2017 • 4:00PM Main Library

RSVP: 888-887-4252

Client Testimonials:

My dear Rosa, Having lived for 18 years in Nevada and satisfied with the established business arrangement with my stock advisor, I didn't think I needed advice about financial matters. I actually had a meeting with another insurance man, just after moving to Florida, about moving my funds from Nevada, but was panicked about leaving my adviser. But was I wrong. After you invited me to your seminar about financial planning, I decided to get another opinion. And very glad I did! You helped me to see what was likely to happen to me if I didn't plan a better route for the rest of my life. You made it very easy, as well as comfortable, to revise a logical and safer way of handling my accounts. Besides the enlightening information you provided our group, you introduced us to a very smart and savvy lawyer who is also devoted to helping seniors with putting our affairs in order. Now that it is all transferred and settled into a more secure plan, I can now relax and not worry about the market yoyoing and taking my investments with it. I can't thank you enough and offer my service, if you need a confident client to encourage possible new ones, to share my testimony with. Many, many thanks Very sincerely yours – Dianne K.

 
 

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