May 23, 2017
Trump and Your Investments: Why You Should Ignore the Stock Market
Been feeling nervous watching your investments these days? You’re not alone.
If you’ve been feeling nervous watching your investments these days, you’re not alone.
Recently, markets around the globe have been responding to all the political turmoil in Washington, D.C.
Markets are reacting to the inability of the Trump administration to push its agenda of tax cuts, reduced regulations, and infrastructure spending according to various reports.
After rising for months, on Wednesday, the Dow Jones Industrial Average–one of the key market gauges, or indices, in the U.S.–lost 370 points, or nearly 2% of its value.
Similarly, the Standard & Poor’s 500, which represents a broad basket of stocks of some of the largest U.S. companies, lost 43 points, also a 2% drop in value. Those were the biggest market losses in eight months, according to Time magazine.
Check out: Trump’s Tax Plan: We Explain It
Here’s why you should take the long view and ignore the what’s happening in the market:
The stock markets are not the economy
While market indexes may go up or down in the course of a week, month, or even a year, they may not accurately reflect what’s going on in the economy.
Why is that important?
Economic strength is often a key factor in stock market performance, which generally reflects the performance of publicly traded companies. And when you invest in stocks, you are buying pieces of these companies.
In fact, since the recession ended officially in 2010, the U.S. economy has grown at about 2.5% annually. Key underpinnings of the economy are still strong, according to many experts, who forecast this growth will continue through the year.
Buy and hold your investments
Over time, financial experts say the best strategy is to buy and hold. None other than Warren Buffett, the chief executive of conglomerate Berkshire Hathaway, also known as the Oracle of Omaha, recommends not even looking at your portfolio once you’ve made your choices. (Ideally, that should be a diversified mix of stocks, bonds, ETFs and index funds.)
Buffett is worth an estimated $73 billion, and has earned his wealth by investing in the stock of solid companies, and holding the investments.
“I would tell (investors) not to watch the market closely,” Buffett told CNBC in a recent interview. “If they buy good companies, buy them over time, and they will do fine ten years from now, 20 years from now and 30 years from now.”
Market data backs Buffett up: Over the last 100 years, a time period that includes both the Great Depression and the Great Recession, The S&P 500 on average has returned about 10% annually.
Here’s the bottom line:
The economy will have good times and bad ones, and stock markets are likely to fluctuate significantly in the short run. Financial experts say the best strategy for most investors is to buy a diverse set of investments, and then hold on.
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