Sometimes stepping into the political arena feels like you’re stepping into a minefield! If you are unsettled by the ups and downs of today’s politics and concerned about the impact on the stock market, you’re probably not alone. Although most Americans find the steady diet of headlines concerning, what happens in Washington isn’t necessarily translated to the equity markets. So, I felt it was important to provide some context and fundamental principals in relation to your investment strategy and today’s political environment.
Despite the concerning headlines, we’re still seeing strong economic conditions. Consider a comparison of today’s economic environment to 1973-74 when political and global issues were at an equal height of uncertainty during the Watergate and oil embargo era. As Table 1 illustrates, the fundamentals are radically different today. Today’s political and international uncertainty has yet to generate economic uncertainty. We have seen little downside in stocks, so far.
Ignore the Distractions
It really is about the economy. Well, mostly! Political and global issues may impact our economics at some point, but that isn’t what’s happening right now. Focus on the important economic situation and try to ignore the distractions.
Simply put, the economic fundamentals outweigh the negative headlines, whether those headlines originate in the U.S. or overseas. The longer-term focus of the markets has always been the economic fundamentals. I don’t believe that focus has changed. Unless the economy is significantly impacted, unexpected and alarming events may create short-term volatility, but they rarely create long-lasting impact.
Investment Strategy Must be Written Exercise
If you don’t have a well written financial plan and investment strategy that you stick to, you probably will not do nearly as well as if you did have one. Numerous studies indicate that trying to time the market, either buying or selling, is a game that most people, including professionals, cannot win. You may get lucky on occasion, but it is more of a gambling strategy and not solid investment planning.
A key component of your written plan should be an Investment Policy Statement or IPS. An IPS states what type of investor you are, what types of risk you are willing to take, and the types of investments that fit your profile. If you don’t have an IPS, it’s critical that you create one.
Solid long-term financial planning and an IPS is much more likely to yield stronger long-term results. Write out your plan and stick to it!
Understand Key Market Indices
What’s happening around the globe may be very different than what’s happening at home. Keep an eye on key global indices. Also, keep an eye on the various US indices for stocks and bonds. Educate yourself to what these indices mean and compare to months and years past to get a feel for the long-term direction, instead of short-term temporary set-backs. Your investment strategy should go beyond the US borders! Our Market Update page has a variety of charts that you can check daily.
Become Financially Literate
According to Investopedia, the definition of financial literacy is “the education and understanding of various financial areas. This topic focuses on the ability to manage personal finance matters in an efficient manner, and it includes the knowledge of making appropriate decisions about personal finance such as investing, insurance, real estate, paying for college, budgeting, retirement and tax planning.”
Notice how the definition includes investing but is not limited to investing. An overall understanding of all the finance areas that affect your life is key to being truly financially literate.
That’s a tall order for someone that doesn’t like finances or isn’t their strong point. That’s understandable. The financial arena is much more complex than it was 50 years ago. There is a downside to the proliferation of choices we have today. It adds a layer of complexity and creates confusion. Many don’t know where to begin. Many fall into paralysis by analysis.
One of my goals in my practice is to educate the investor. You can also help yourself by reading as much as you can.
Actions You Can Take
Ask questions. That is what I am here for. There are no bad questions. What we don’t know can hurt us. And financial ignorance can be extremely costly.
If you do not have a financial plan, seek out a no-product-sales type of Financial Advisor to help you create a unique and personalized plan based on your financial goals and objectives.
Read finance books to gain financial literacy. We have a good selection of classic books on our Finance books webpage.
About Kastler Financial Planning
Our core purpose is to improve the financial life for each and every client we serve while protecting your financial data. We believe that people of all income levels should have access to affordable and professional financial planning and investment management services, without the pressure or bias of product sales and commissions. Always acting as a fiduciary, the only fee we receive is the fee paid by the client. We put your best interest before our own. No product sales, no commissions, and no account minimums.
We specialize in broad-based fee-only Financial Planning for families, Retirement Planning for those at or near retirement, and Small Business Retirement Plan Consulting for small business owners. We perform these services either as hourly, a one-time fee-only project, or as on-going financial planning, depending on your needs. Compare our fee-only Financial Planning services. Our suite of services also include Investment Management Services with the options of low cost flat-fee portfolio management or % Assets Under Management.
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