Every new year brings with it new opportunities… and, potentially, new losses. 2017 has been a particularly tumultuous year for investors — not only because of economic shifts but also because of excessive speculation.
The marketplace has had to adjust to many changes, ranging from Brexit to the 2016 presidential election. Though all of these things did initiate changes, they weren’t always in the direction that investors expected. Moreover, fear and anxiety may have mislead investors into some rash decisions.
Getting Caught Up in Political Turmoil
The 2016 presidential race led to a lot of financial speculation, from the very beginning of the race to the inauguration in February of 2017. But as Warren Buffett himself stated: “Never bet against America.”
Most of the fluctuations within the stock market were fairly short-term and widely unpredictable; even day traders may have found themselves stumped at a few of the more dramatic changes. There were speculators who expected the market to tank once the new president took office; likewise, there were speculators who expected that the market would sharply rise. But investors need to think long term rather than short term about their investments.
Though a presidency may be a monumental thing, in terms of most stock portfolios, it’s really just a small bump in the road.
Going All In On Stocks
America is currently in the second-longest bull market in history… and that means that a market correction isn’t far off. 2017 isn’t the year for going all into stocks; instead, investors should be hedging their bets by also investing in high-yield dividends, bonds, and other financial instruments.
Every investor needs to keep a diversified portfolio, and though a bull market doesn’t guarantee that stocks are going to fall, it is a fairly reliable indicator that a recession or a correction could be just down the road.
On the other hand, with oil and gas prices falling again, it could be a sign that the economy will be bolstered at least for the near future.
Avoiding the Purchase of Real Property
Many investors are still hurting from the real estate downturn of 2008 and are hesitant to invest in real property. But it’s been nearly a decade since the housing market crash, and real property remains one of the most stable forms of investment.
In particular, younger investors shouldn’t be shying away from buying homes — but many of them are, due to the fear of investing in real property and experiencing another market crash. Investments in real property, especially home purchases, need to be considered not only in terms of appreciation but also in terms of the reduction of expenses.
When talking about investment properties, such as rental properties, real property becomes a business rather than just an appreciable asset.
Selling During a Crash
Investors know that they are never supposed to sell during a crash. Again, when the presidential election was occurring, there were moments when the market crashed — but it quickly recovered.
Investors who were timid or low-risk often cash out during these times and lose a significant amount of their portfolio. In fact, a crash is usually the best time to invest more money, with the assumption that the money is going to be invested for some time. After all, these events coincide when stocks with good fundamentals are cheapest.
Realistically, political environments aren’t going to change something like the valuation of a company such as Google; it will just make their stock cheaper to buy. Once these very temporary issues are resolved, the stock market self-corrects, and the stock rises again.
So what did investors get right? There are many things that speculators actually were spot on about — such as the British pound falling dramatically compared to the U.S. dollar following Brexit. But even then, these changes are not necessarily predictable over longer periods of time.
Investors should be aware that the vast majority of investments are intended to be held for a long time; consequently, these minor political and economic shifts may not pan out long-term. For the day traders and foreign exchange traders, on the other hand, 2017 may have offered some real potential for gains.
Regards,
Ethan Warrick
Editor
Wealth Authority
