As of December 12, 2016, the Dow is up almost eight percent since the election and facing yet another record close. What does this mean for you in terms of your investing practices and goals? Are you hoping to jump in the fray and take advantage of the Trump Bump or are you already reaping the benefits? The future certainly looks bright from many directions—but make sure you keep that in perspective when considering investment options.
There is a new level of confidence among many investors since Donald Trump won the presidential election. In fact, according to a recent Wells Fargo/Gallup Poll, small businesses are more optimistic than they have been in eight years.
Where are these new levels of optimism and confidence coming from?
There are several different explanations. The first is that stock prices being high exudes a certain perception of wealth. Second, there are a great number of people and investors out there who do indeed believe that Trump’s policies may very well lead to a faster economic growth. According to Forbes in an article published on December 10, “This week, the rally in U.S. shares continued as investors see Trump’s economic policies— tax reform, regulatory reform, and stimulus spending—as particularly good for business.”
However, it is important to note that on the other side of the coin, there are many people who believe Trump’s policies will be just as detrimental in the long run. For instance, while tax cuts sound fantastic and may help the economy grow—experts predict the federal deficit to skyrocket. Additionally, there is a chance that the expected interest rate increase by the Fed this week could be higher than anticipated because of the Trump Bump. We’ll know more about that on Wednesday when the Fed announces their plan, but we all clearly understand what higher interest rates mean. Those are just a few examples that facilitate the belief that the bump will turn into a slump.
Will the Trump Bump Slump?
Here’s the deal—as always, no one can exactly predict the future in the investing world (or in any world, for that matter). So, even though many investors are wildly excited and have benefited from the rise of stocks in the past weeks, not every sector has experienced a bump. While things like tech and transportation soared, other companies in the index (such as health care, utilities, and consumer staples) dropped.
And, that’s the beauty of the beast we call the stock market—we just don’t know how it will perform. It’s fluid and sketchy and strong and weak and wholly dependent on many factors that we can’t even begin to control.
So, even though consumer confidence is up and optimistic and hopeful, the fundamentals of investments have not changed. In fact, Gene Marks, CPA, with The Marks Group appeared on Fox News Monday and encouraged individuals and investors who are not seasoned in the stock market realm to be somewhat conservative in their participation now and to definitely consult an expert before “jumping in head-first.”
While we cannot tell you what to do—we hope this article shed some light on the temperament of the stock market right now. We hope you are already benefitting from this historical upswing. But, if you’re just starting to plan to take advantage of the stock market’s Trump Bump by investing now, proceed with caution and perform due diligence on any assets you consider. As Marks suggested, if you aren’t market savvy, consult an expert to increase your chances of potential success.
Advanta IRA is a self-directed retirement plan administrator that serves clients across the nation who hold over $700 million in assets. While alternative investments are popular in self-directed plans, stocks, bonds and mutual funds are also permissible assets that can earn tax-sheltered income for retirement.