[11/12/17: Please also see the 6-Month follow-up to this article!]
As retirement draws near, I have to be more thoughtful about how I invest my admittedly modest savings, and the election of Donald Trump has made this very complicated, to understate a bit. Like most leftists, I believe that his campaign promises will damage the American economy in the long run, by overheating the economy, and then bringing in a popped-bubble recession. However, it is clear that the stock market totally disagrees with me. The Dow Jones Industrial Average, for instance, has skyrocketed from around 18,000 in early November to around 21,000 today.
If that sounds like a ringing endorsement of his promise to “make America great again”, however, we need to also consider the fact that the price of safe havens like gold and Treasury bonds have recovered much of the initial crash after the election.
This means that there is a bit of a split-personality going on in the market. Like the rest of the nation, Wall Street is also divided along partisan lines in their assessment of the future.
So, how is a middle-class soon-to-retire professional to cope?
I have asked one of my more level-headed lefty friends, also nearing retirement, and wealthier than me, to tell me what to do, and this is what they sent me a couple of months ago. Since I have found it helpful, I am posting it here, with some updates and corrections they wanted to make, to reflect recent events and data.
Investing in the Age of Trump
Trump’s seeming inability to quickly implement the major components of his economic agenda–tax reform, infrastructure spending, and health care reform–that the pro-Trump half of the market is betting on is a big source of complication. From the anti-Trump perspective, in the long run, this is a good thing, since he won’t be able to wreck the economy that quickly. From the pro-Trump perspective, however, in the short run, all of these promises have already been priced into the market. If he fails to deliver soon, the short attention span of the market will turn against him, and this will not be good for the economy as a whole, whether you are for him or against him.
To be sure, we can’t go all-in that he’s going to succeed, and we can’t go all-in that he’s going to fail. A good anti-Trump portfolio has to take a balanced approach. In other words, if you haven’t diversified, now is the time.
Here are the possible scenarios we need to prepare for.