Post-Election thoughts about your investment planning

We wanted to check in with you about your investment planning after the recent US Election.  As you're likely aware, after dropping more than 800 points in overnight trading when the results of the Election were finalized, the Dow closed the first business day of trading post-Election up 256 points. And then on the second day, the Dow added another 218 points.  Global markets have rallied as well.

As we frequently state, the future direction of the stock market is unknowable.  Adjusting your portfolio in advance of trying to guess the impact of current events on the markets can lead to negative investment experiences.  Rather, we suggest developing an asset allocation for your portfolio that takes on the appropriate amount of risk you're willing to take, and keeping any funds you need for the next 1-2 years as cash to not have to worry about short-term market fluctuations.  The key point is "how much risk are you willing to take?"   How can we assess that?

For some perspective, I'd like to share with you some performance numbers from our MoneyGuidePro financial planning software from the 'Great Recession' (November 2007 - February 2009).  From the start of this time period to the end, here's how much each of the following portfolios would have gone down in value:

40% equity / 60% fixed income - down 11%
50% equity / 50% fixed income - down 18%
60% equity / 40% fixed income - down 24%
70% equity / 30% fixed income - down 31%
80% equity / 20% fixed income - down 38%
90% equity / 10% fixed income - down 44%
100% equity / 0% fixed income - down 51%

Past performance is no guarantee of future results.  But if we perform a thought experiment and assume that the 'Great Recession' is a worst-case scenario, it's instructive to then ask ourselves "how would our financial plan be if a worst-case scenario occured again and our portfolio performed like its corresponding allocation above?"  This can be helpful in understanding just how much risk we're really willing to take in our investment portfolios.

We're not making any predictions about what impact the Election will have on the markets.  And this thought experiment should be done irrespective of what the results of the Election were.  We all have our own view on what the impact of the Election is from the perspective of being a citizen or resident of the country.  We think it's important to distinguish your perspective as a citizen from your perspective as an Investor.  As Investors, we should focus on the things we can control and recognize that how markets react to current events is out of our control.  By doing so, we maximize our chances at having a positive investment experience and a successful long-term financial plan.

We hope all is well with you and your families.  If you have any questions about your investment planning or any other areas in your wealth management, please let us know.

Thank you again for having us be your CPA and financial advisor!