Admit it 401(k) focused investors — you have put your fist through a door at least once this year as President Donald Trump’s tweet storms on global trade inject insane levels of volatility into equities markets.
One day the president strikes a negative tone on trade with China via Twitter (see Aug. 23), the stock market goes in the toilet. The next day — or hour — the president hints on Twitter that trade negotiations with China are going well and a deal may not be that far off. Stocks rip higher, until the next concerning China trade tweet.
A vicious circle indeed that creates headaches for those looking to plan for their financial future by building up a 401(k). The endless presidential tweets and subsequent market volatility is also eroding confidence in stocks as an asset class, says numerous pros Yahoo Finance has chatted up.
UBS Wealth Management strategist Jason Draho and his team recently made a big call on stocks, mostly due to rising political risk and the blowback it could have soon on the U.S. economy. Draho has moved to an underweight on U.S. stocks in client portfolios — that’s another way of telling clients stocks are poised to underperform other major asset classes.
While Draho acknowledges easier monetary policy will help support stocks, the rising prospect of a trade war fueled recession makes stocks less attractive at the moment.
So, what is a longterm minded investor to do in such a topsy turvy backdrop? Think rationally for starters and stay focused on the longterm prize, Draho suggests.
“What we tell our clients is to think about different strategies for their needs. If you have enough money to cover your expenses for the next two or three years, if you get a draw-down in equities of like 10% you will still be able to pay your bills. So the starting point is to make sure you have your financial system set up properly for yourself and have that longterm plan in place,” Draho said on Yahoo Finance’s The First Trade.
Good, rationale tip.
Invesco global market strategist Brian Levitt has a similar philosophy.
“It really depends on your time horizon and what’s in your policy statement. For me, in my policy statement it reads I have to send two kids to college and get them out of my home, and I have some years to do that — so I am going to try and grow my base. I’m not looking for safety or income,” Levitt says. “My view is that this is going to be a slow growth world for a lot of the time they are approaching college. So I want to be in true growth assets in the United States and around the world.”
Adds Levitt, “If you need cash in the very short-term, perhaps it makes sense to get defensive. But if you are trying to time these markets, it’s very much a fool’s errand.”
So in other words, don’t trade on Trump’s tweets.