It’s been a wild, unpredictable ride for Donald Trump to become the presumptive presidential nominee of the Republican Party. The Democratic Primary had a huge surprise as well, but the outcome was as predicted.
Though I suspect political scientists will be delving into this crazy election for years to come, I’m not a political scholar, and this isn’t a political piece. I’m a financial writer and, in my opinion, the last several months hold some key investing lessons.
Serveral months ago, 17 candidates entered the GOP race for the party’s nomination for the presidential election. I don’t know of anyone who originally predicted Trump to be a serious candidate. I’m not even convinced “The Donald” himself thought he could win.
It was Jeb Bush who appeared to have everything going for him, including the most endorsements, name recognition and war chest for the campaign (if you exclude Trump’s personal wealth). And very powerful forces within the GOP Party moved to discredit Trump, such as past nominee Mitt Romney and House Speaker Paul Ryan.
Yet as we all know, Trump crushed the competition and won more votes in the history of the Republican primaries. Whether that’s a good thing isn’t the point of this story—the three key investment lessons are.
Invest knowing the future is far more uncertain than either you or the experts think it is. I keep hearing that a Great Depression-like 88% plunge in stocks is impossible, and many say another 50% plunge is as well. On the opposite side, I hear others say—including experts—that long-run stock returns will be far lower than in the past.
The Trump takeaway is that no one really knows. Let your willingness and need to take risk be your guide in setting your asset allocation. If you don’t have time to recover from a plunge, take risk off the table. Don’t keep changing your allocations and investments based on expert advice or how you feel the future will unfold.
Powerful forces aren’t that powerful. If the mainstream power brokers failed miserably at stopping Trump, what makes you think the Federal Reserve, financial industry, or any institution or person has any control on market forces driving stocks and bonds? They don’t; so go back to the takeaway from Lesson One.
Hindsight is dangerous. Today the political commentators explain why Trump’s unconventional campaign was so successful and why the party’s political machinery failed. This is essentially the same as the financial industry, in hindsight, explaining the bursting of the dot-com and real estate financial bubbles. That hindsight led many to ditch stocks at just the wrong time.
When people ask me my prediction for stocks and rates, I proudly answer, “I don’t know.” In fact, I make sure my clients know from the get-go that I don’t know the future and that I’m building their portfolio with the knowledge that I know I don’t know.
Allan Roth is founder of Wealth Logic LLC, an hourly based financial planning firm. He is required by law to note that his columns are not meant as specific investment advice. Roth also writes for the Wall Street Journal, AARP and Financial Planning magazine.