Let’s face it. People always can come up with a list of reasons to not invest.
Throughout history, people have elected to not invest in reaction to many things, whether it be world events, the U.S. economy or a variety of other factors. Certainly the past 10 years haven’t offered an exception.
But let’s examine some of these fears, both current and past, in light of your overall investment strategy.
The stock market uncertainty that occurred with the announcement of Donald Trump’s presidential election victory is quickly fading. Dow futures were down as much as 900 points in the early morning hours after Election Day. By the time the market closed Wednesday, Nov. 9, the Dow Jones Industrial Average closed 257 points higher. As of Dec. 13, the DJIA closed at a record 19,911.
While the election results are a major investment theme as we look toward 2017, central banks, China and commodities were key focus areas heading into 2016. The Federal Reserve raised interest rates twice in 2016, when most forecasts called for as many as three increases.
Central banks of other developed nations, such as Germany and Japan, lowered rates into negative territory. We also observed commodity prices stabilize while China continued to depreciate its currency against the U.S. dollar hoping to stimulate growth.
Several additional investment themes being discussed as we head into 2017 include the continued role of central banks in the global economy, and whether politics will undermine economics when it comes to overall globalization, trade and taxes. There is also some concern in the US about President-elect Donald Trump’s planned infrastructure investments.
For example, will deficit spending associated with the planned infrastructure investments lead to inflation, and ultimately, higher interest rates?
Before you make any hasty changes to your investment strategy, consider that a major component of market returns comes from uncertainty and risk. Every year there will be several unknown events that occur which impact global markets. The following timeline lists several of these major, perhaps unanticipated, events since 2007.
2007: Subprime lending crisis.
2008-2009: Bear Stearns and Lehman Brothers declare bankruptcy, leading to the “Great Recession.”
2010: Flash crash — second largest intraday point swing in the DJIA of 1,010 points.
2011: Standard and Poor’s downgrades U.S. debt below AAA.
2012: Hurricane Sandy devastate the northeast.
2013: Taper Tantrum, bonds sell off as fear grows the Federal Reserve will raise interest rates.
2014: Geopolitics rule the day as Russia invaded Ukraine.
2015: Crisis in Greece.
2016: “Brexit” – United Kingdom votes to withdraw from the European Union.
What are the implications for your investment strategy and your ability to save and/or invest? Successful financial planning requires the ability to focus on the things you can control. Understand that your financial plan is based on your goals, factors in your investment time horizon and is designed to serve you through both favorable and unfavorable markets.
Keep saving and investing. In uncertain markets, regular investing can be a good strategy to manage risk. Properly planned asset allocation can reduce the effect of volatility during time. Manage the effects of volatility with periodic rebalancing.
As noted earlier, there always are reasons to not invest and the markets will occasionally suffer unexpected setbacks. The difference, though, is how you respond to these declines.
The ability to stick to your financial plan can make a significant difference in your overall financial success.
This publication represents the views of the author, and does not necessarily represent the views of RSM U.S. Wealth Management LLC. This publication does not constitute professional or investment advice. RSM US Wealth Management LLC is a limited liability company that provides investment advisory services, financial planning and other wealth management services to individuals and businesses. RSM US Wealth Management LLC is an SEC-registered investment adviser.