Amid Trump-related market jitters, keep calm and carry on

US stocks have fluctuated in volatile trading in the aftermath of Mr Trump's surprise presidential election win. But rather than getting out of the markets, the crucial question that investors should ask is: Has any of your goals changed? If it has n
US stocks have fluctuated in volatile trading in the aftermath of Mr Trump's surprise presidential election win. But rather than getting out of the markets, the crucial question that investors should ask is: Has any of your goals changed? If it has not, it is not clear why your investments should.PHOTO: BLOOMBERG

In the coming days and weeks, any tumult in the markets will probably be about a lot more than the companies we invest in.

We can never know for sure why the stock markets move as they do. But we can probably attribute any decline as these weeks of transition unfold as much to worries about how United States President-elect Donald Trump will conduct himself on the world stage as to concerns about how his economic policies will affect the profits of the corporations that make up those markets.

If most of your retirement savings is in stocks, however, you don't care what the reason is. For many people, the temptation is to get out of the markets. And among some people whom Mr Trump targeted with barbs and insults, there is palpable concern about much more than investments.

So stop. Breathe. People often regret big financial decisions they make in haste.

And consider the following:

A Republican president with the House of Representatives and the Senate behind him can make a lot of changes very quickly, and the stock market may fall a fair bit and be volatile for some time. Still, whatever Mr Trump actually does will happen slowly, over many months.

1. The S&P 500 index of large US stocks is about where it was two years ago and nowhere near the depths it reached in 2009.

At this level, it is still pretty far above the historical median for one crucial ratio of stock prices to earnings that the Nobel laureate Robert J. Shiller has developed.

Markets will do what they will do. But if you have been investing in stocks for a while now, you are most likely still a winner.

2. Consider the statement you are making to yourself if you move all of your money to some kind of cash savings account, just to be safe.

Once upon a time - like, say, last week - you had an investing plan that was based on goals that may come years or decades from now. Perhaps you are hoping to buy your first home. Maybe you are trying to save enough to send a couple of children to college. You hope to retire when you are 67.

Has any of that changed? If it has not, then it is not clear why your investments should.

3. But, of course, things have changed and it is about so much more than just the markets.

The man who is about to become president has bragged about abusing women, threatened to keep Muslims from immigrating to the US and questioned whether Mexican-Americans can be impartial judges. If you don't know someone who is worried sick about some or all of this, you are not asking enough questions.

Still, a bet on stocks has always been a bet on capitalism. American investors tend to have at least half of their stock investments in US companies. And many global companies sell plenty of goods and services to people in the US.

So if you sell now and stay out of the markets for the foreseeable future, you are doing one of two things.

You are either assuming that the election of Mr Trump and all that he stands for means that investing in capitalism is now a sucker's bet. Or you are claiming that you will know exactly when the coast is clear and it is safe to get back into your stock investments.

I can't and won't time the markets, and most professionals who try will fail if they make those bets repeatedly over long periods of time.

My long-term bet remains on America and global stocks for now, with a healthy portion in international and emerging markets.

A Republican president with the House of Representatives and the Senate behind him can make a lot of changes very quickly, and the stock market may fall a fair bit and be volatile for some time. Still, whatever Mr Trump actually does will happen slowly, over many months.

Given his history with the truth, he may not have meant everything that he promised, nor will he get his way on everything that he tries. But I expect to be happy that I stuck with stocks when I try to retire a couple of decades from now.

Retirees have a particular challenge here. Those who retired recently and are healthy, however, probably ought to plan on another 20 to 30 years of life, especially if there are two people in the household. That time horizon suggests the need for at least some stocks.

Older retirees need to consider just how much their budgets could suffer if, say, a trade war sends stocks down 10 or 20 per cent in a year or two. Perhaps it makes sense to park a couple of years' worth of basic expense money in cash just to be safe.

4. If you simply cannot take the gyrations in the stock market any more, you can make other choices.

You can buy bonds of various sorts, including municipal bonds that benefit citizens in cities and states that match your political leanings if you want to bet on only part of America.

But history suggests that you will earn less in bonds than you would if you had invested in stocks. If that is the result, then you will need to save even more money, work longer or live on less in retirement (or some combination of the three). That may be palatable if you have reached the limit of the anxiety you can tolerate.

Or you can invest in a business of your own, which is a big, concentrated bet and a risky one too. Owning rental real estate is another possibility, since whoever does get to live here will need a place to stay.

5. There are many things in life that matter more than the stock market.

Family - the freedom to form a family, or not, in all of the ways that are legal now and bring financial privileges with them. Health and access to medical care that will not bankrupt you.

In the cloud of strong feelings that forms when we feel threatened, it is tempting to turn our backs on the system that allowed these perils to emerge. Doing just that is a real option for the small number of people who are able to emigrate or live mostly off the land.

But most people will not do that. They will stay and muddle through and raise their voices, too, and it will probably be easier if they have not locked in losses, moved their savings to the sidelines or sold out at the bottom of any further market declines.

NYTIMES

A version of this article appeared in the print edition of The Sunday Times on November 13, 2016, with the headline 'Amid Trump-related market jitters, keep calm and carry on'. Print Edition | Subscribe