Just before Donald Trump assumed the presidency, financial advisor Eve Kaplan had a client ask if she could remove his funds from the market until he knew the president's plans. The retired client felt unsettled about all the unknowns in the marketplace and thought the strategy would keep him protected.
It's a conversation Kaplan has a lot these days.
As the Trump administration takes focus, many investors -- including long-term savers -- await how the economy will take shape if the new president's initiatives become law. With priorities jumping from border taxes to potential trade battles with China, renegotiating the North American Free Trade Agreement and health care reform, changes have left many unsure about their investments.
At the same time, though, the stock market has moved up 7 percent since Election Day and the Dow Jones industrial average surpassed 20,000 for the first time. It's a sign that investments could benefit from some of Trump's policies that call for a reduction in regulations.
But for retirement planning, much of this conversation and concern should be treated as white noise.
You have a plan, even with the unknowns. This wasn't the first time Kaplan's client had asked her to pull his investments. It also happened two years ago during a market lull. Weeks later, the market recovered. "I don't believe in market timing and I'm a former fund manager," says Kaplan, who runs Kaplan Financial Advisors in Berkley Heights, New Jersey.
There are benefits to holding steady, even if the market turns down.
The best example came in the aftermath of the 2008 recession. As stocks fell, many soon-to-be retirees let their stock positions go. But by selling low, they missed the 75 percent jump in equities in the following two years. Wealth management platform Circle Black found that if an investor placed $1,000 into an index fund based on the Standard & Poor's 500 index largest companies in 2008 prior to the collapse, she would have been back on the positive side by the end of 2009.
A market correction could be around the corner and that would have been the case whether Trump or Hillary Clinton won the presidency. The bull market has been on an eight-year run. An average bull market lasts 8.9 years, according to research by First Trust Advisors.
Hard to pick winners and losers. One unique aspect of the Trump administration is his willingness to criticize specific businesses in tweets. Since his election, he has called out General Motors Co. ( GM), Toyota Motor Corp. ( TM), Lockheed Martin Corp. ( LMT) and Rexnord Corp. ( RXN), among others. And it's hard for analysts to predict which company will next draw Trump's attention.
Trump also wants to rework NAFTA and institute a border tax. This has some savers wondering if they should move their investments, says Mark Ciucci, senior vice president of advice at United Capital. "No one is smart enough to pick in advance," he says.
Some investors may want to try to pick expected winners (infrastructure companies) or projected losers (companies that would be affected by a cut in trade with Mexico). But it's wiser for investors to instead focus on diversifying their portfolios. It's the only way to see benefits from those that win from the new policies while avoiding the risk it would take to guess the victors.
Morningstar found that since 1980, a highly diversified portfolio with multiple asset classes outperformed by 16 percent a portfolio that featured only a few asset classes.
Health care remains a big question mark. One of Trump's top priorities is repealing the Affordable Care Act. He has also said he would keep current Medicare and Medicaid levels.
But whether or not that holds true depends on the discussions going on in Congress, as it develops a program that could potentially replace the ACA. That leaves Kaplan's clients dealing with a complete unknown. However, the issues with health care, like rising costs, are nothing new.
"This has been an ongoing trend for a very long time," Kaplan says. "Health care costs have been rising for a very long time."
Kaplan says she advises clients to have thicker retirement cushions to protect them from increased health care costs. And that won't likely change, no matter what law comes into place.
There's also the option of investing in long-term care insurance. It will protect against the unknown -- and expensive -- cost of care if one's health requires daily assistance in the future. While the insurance has also increased in price over time, it's an option for those wanting a safety net for the unknown that comes in the late stages of life.
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