Assessing the “Trump Bump” – What to Do Now

Assessing the “Trump Bump” – What to Do Now

Recently, several clients have called to ask something like, “The markets have run up a lot. Should we have more in stocks?”

Since the election, stocks have had a nice run. The typical explanation for this is that President Trump campaigned on change and the market rose in anticipation of lower taxes and a more pro-business environment. This is a reasonable viewpoint and there are many reasons to be optimistic about the U.S. and global stock markets.

However, even if taxes are lowered and policies boost the profitability of companies, the market can still do poorly as it has numerous times in the past.

To understand how that could be, you need only speak to those who think the market has gone up too far. We have also fielded a few calls from clients asking something like, “The markets have run up a lot. Should we have less in stocks?” Many of these clients think the recent run up is an irrational reaction to promises that can’t be kept or will have bad unintended consequences. This is a reasonable viewpoint and there are many reasons to be pessimistic.

However, even if the promises are broken or cause other issues if kept, the market can still do well as it has numerous times in the past.

If you act on your short-term prediction and are wrong, it can be costly, but being right is arguably an even worse outcome.

The problem with either question these clients have asked is they are the questions of a speculator. They have a short-term orientation paired with either a dose of fear or greed.

If you act on your short-term prediction and are wrong, it can be costly, but being right is arguably an even worse outcome. Fueled by fear or greed, you will be tempted to speculate again but with more money until your losses wipe out your gains. It is the same trap that victimizes gamblers. It is an easy trap to fall in to because we humans are wired in a way that makes staying disciplined and prudent difficult when our emotions are high.

Whenever the market moves meaningfully up or down, there are actions to consider. We take actions on your behalf such as rebalancing your portfolio in accordance with the parameters of your Investment Policy Statement (IPS). Your IPS was created thoughtfully, prudently, and collaboratively to maximize the odds you may achieve your goals. In no case does an IPS include moving large percentages of a portfolio based on a guess about which way the market will move next – no matter how highly educated and seemingly well thought out that guess may be. That would be speculating through market-timing.

If you are hearing the siren song of market timing and are wanting to pile in or out of stocks, take a deep breath and ask different questions. Ask the questions of an investor with a purpose. Here are a few with the answers that we believe get the most reliable results.

  1. How many times has the market declined significantly? A. Many
  2. How many times has the market declined significantly and not recovered? A. Never
  3. How many times has the market risen significantly? A. Many
  4. How many times has the market risen significantly and not retreated? A. Never
  5. How much in unnecessary expenses and taxes do I want to pay? A. None
  6. When do I want my portfolio to be positioned in a manner that is inappropriate for reaching my goals? A. Never
  7. When do I want my portfolio to be positioned in a manner that is in alignment with my goals? A. Always

Market timers ignore questions 1-4 and have different answers to 5-7.

True investors stay diversified, disciplined, and patient. They never forget questions 1-4 or that markets have risen more frequently and farther than they have fallen. True investors answer questions 5-7 as we did.

Invest, don’t speculate.

News & Notes

New digs: Our Melbourne office is moving! After 17 years, a top floor suite in our building finally became available. Between the views of the river and the additional space provided, we couldn’t pass up the opportunity. Near the end of May or early June, you’ll find us in Suite 500. The street address will remain 6767 N. Wickham Road and there will be no changes to any of our other contact information – same phone, email and web address.

A website makeover: We have simplified the content for visitors, added a smoother link to your online portals, and enhanced security features. Visually, it is quite a change but our approach and philosophies have not changed. We remain staunch advocates of coordinated financial planning and eschew both investing over narrow viewpoints and speculation.

Derrick Chandler

On a quest: In our commitment to continuing education, we attend many conferences and the first quarter of 2017 was full of learning opportunities. Mike Salmon, Charlie Fitzgerald, Derrick Chandler, and Lynne Strynchuk attended the annual Symposium of the FPA of Central Florida. In addition, Derrick is a participant to an invitation-only executive leadership program run by CEOs of some of the finest firms in America. Dan Moisand attended the national conference of TD Ameritrade, an invitation-only Top Investment Advisor’s conference put on by Barron’s, and the first ever Academic Research Colloquium hosted by the Center for Financial Planning. Financial planning interacts with a number of fields such as finance, economics, and psychology and the Center is working to bring relevant academic research from these fields together to enhance the profession’s body of knowledge.

Congrats to Tommy: Congratulations to Tommy Lucas for passing the CFP Board’s certification exam. To be able to use the CFP® mark and hold out as a CERTFIED FINANCIAL PLANNER™ professional, a number of requirements must be met but the exam is considered the most difficult. The pass rate is typically less than 60%. We anticipate getting authorization from the CFP Board to add “CFP®” next to Tommy’s name next summer.

Clients: Please remember to call us when anything significant happens in your life, including changes in your finances, family, or health that could affect your financial plan, please let us know so that we can adapt our planning and portfolio work for you accordingly. Also, if you ever fail to receive a monthly statement for one of the Schwab Institutional or TD Ameritrade Institutional accounts under our management, please let us know so we may assure the respective custodian delivers your statements promptly.

Yours truly,

The Team at Moisand Fitzgerald Tamayo, LLC

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