Asset allocation for the end of times
November 10, 2016 4:40 PM   Subscribe

Say you were worried about your retirement investments due to the upcoming transition of power and subsequent appointment of unqualified people to manage the country's economy. Say you are worried about a downturn in stocks and government issued bonds. Where would you allocated your money?
posted by chevyvan to Work & Money (10 answers total) 8 users marked this as a favorite
 
Depends on your level of concern. Government bonds are a lot safer than stocks. Cash and foreign government bonds could be steps beyond that.

If you work in the US, it's a good idea to have foreign investments anyway. Because you're already heavily invested in your career, US stocks just increase your bet on our economy.
posted by michaelh at 4:47 PM on November 10, 2016


You should also probably be considering inflation as a risk of policy choices (the market certainly is - look how rates have spiked since election!). For the super nervous investor (or one who wants to have ammo to buy a serious decline) short term government bonds (like etf SHY), are probably the best bet. Consider though that from the years of central bank efforts your real returns (interest - inflation) will likely be slightly negative. As soon as you start adding duration (length of bonds), your yields will creep up but so does your risk of losses from inflation / rates rising. There is no free lunch!
posted by H. Roark at 5:21 PM on November 10, 2016


I commend to you this Jason Zweig article in the WSJ. Unfortunately it's behind a pay wall. So, excerpts:

A time of political shock isn’t a time for investing action. Instead, it is a time to watch and wait. The worst possible moment to make clear and durable decisions is when you are surprised by what just happened[...]

Several consensus views on what investors should do are already emerging: Buy defense and infrastructure stocks on the expectation that Mr. Trump will boost spending; sell Mexico and other emerging markets; bet against the chance that the Federal Reserve raise interest rates in December, as the market had been expecting.

But don’t be fooled when market strategists and other pundits predict that President Trump is “clearly” going to do this or that.

Little is ever clear about an incoming president, and no more than usual — perhaps less — is clear about this one[...]

President Obama “clearly” was going to impose health-care regulations, and so he did — but health-care stocks ended up resoundingly outperforming the rest of the stock market while he was in office...

President George W. Bush was “clearly” going to increase military spending, and so he did — but, according to FactSet, defense stocks lost 19% in 2001 and nearly 7% in 2002.

posted by mono blanco at 5:24 PM on November 10, 2016 [4 favorites]


Say you are worried about a downturn in stocks and government issued bonds. Where would you allocated your money?

If neither stocks nor bonds are options, your best bets are cash and gold. But that's just literally the answer to your question--the more important question is whether your plan to upend your investment strategy is a good one or not (it's probably not).

If you have a short to medium term need for these funds, they pretty much should be in cash, anyway, rather than invested in commodities. If you have a long term need for these funds, then pick an appropriate asset allocation for your age. Don't worry about near and medium term consequences and just invest for the long term and stay the course. For example, I'm basically 70/30 equities/bonds, with the equities split up among domestic/foreign. I have literally no idea how this will work out for me in the next 5-10 years, but I'm more worried about what will happen over the next 40. I can't see any reason to deviate from my long-term goals because of my anxiety about our immediate future (believe me I am very, very, very anxious).

If things get really, really bad, it's not going to help you a whole lot having a bunch of gold bars or diamonds or dollars or something, since your primary concern will be to feed yourself from the vegetable garden in your backyard/storehouse of canned goods in your basement and to fend off your hungry neighbors/hordes of roaming gangs. Basically in the worst case scenario we're all fucked anyway, so having an asset allocation preparing for that worst case scenario doesn't do you much good.
posted by MoonOrb at 6:46 PM on November 10, 2016 [1 favorite]


Putting aside whether it's a good idea to change your investment portfolio over this kind of thing (and I agree that it might not be a good idea):

Gold, or silver, or maybe other commodities like oil depending on how you feel about them, but they're more investments than cash equivalents. Possibly real estate in areas where real estate prices are likely to be stable because they're desirable for reasons that are unlikely to change.

The factors that would trash the market would be just as likely to trash the dollar, so I'm not sure cash would be a great option. Similar thing with foreign stocks -- I think it's very unlikely that the U.S. stock market would collapse but that foreign stocks would do well, the economy is too globally interconnected for that.
posted by phoenixy at 7:19 PM on November 10, 2016


You can't win at this. The reason isn't that Trump will have no effect on businesses, it's that as of Wednesday morning, all these effects are already priced in to the markets by people and computer programs who are way smarter than us.

My only advice would be to lock in a mortgage now. They are far below historically normal rates, and any shock to the system will cause them to increase.
posted by miyabo at 9:50 PM on November 10, 2016 [3 favorites]


Yeah, I'm buying a house for renting out. There will be an agency handling it, including maintenance, and the rent will cancel out the mortgage. Over long term, property value always rises at least at the level of inflation. It's not a goldmine, but it is a way to secure my pension - alongside other strategies.
Check out the local climate-change warnings, though: you don't want to buy something that will be flooded or something.
posted by mumimor at 12:12 AM on November 11, 2016


Vanguard co-founder John Bogle's famous dictum, "Stay the course," is the single best strategy an investor can follow in turbulent times. Trying to time the market -- and that's what you're talking about here -- has been shown time and again to almost guarantee under-performance, in large part because you have to be right twice: guessing the right time to get out and when to get back in.

The best protection against volatility is the same as it's always been: broadly diversified, low-cost total-market index funds (e.g. VBTLX for bonds and VTSAX for stocks).
posted by Short Attention Sp at 5:01 AM on November 11, 2016 [8 favorites]


More from Bogle on what course to stay on here.
posted by Capri at 12:56 PM on November 11, 2016


This recent article at WSJ seems somewhat relevant (unfortunately, behind a paywall): Maximize Your Deductions Now. A Trump Presidency Means You Could Lose Them
posted by StrawberryPie at 11:31 AM on November 28, 2016


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