Transition is never easy. In a time when so many new regulations and proposals are in place, planning for the future can feel much less predictable, especially in the financial world. The Trump Administration's big picture views include a level of deregulation for businesses and banks, something that President Trump most likely put into place due to his own business-minded background.
"From a short-term perspective, it's good for the market. The DOW and NASDAQ are at all-time highs. Long-term, it can be scarier because you can run into problems like in 2008 and 2009 where things get too out of control."
Essentially, The Financial Choice Act focuses on loosening regulation on banks and businesses to allow them to operate freely, attempt to lessen costs for consumers, and eventually make more money on their end. The vision is to take it back to pre-2008 times.
Initially, this could be fine. Some argue that so much deregulation could lead to intense environmental consequences, especially from oil and gas companies. This is where things get really tricky, but we'll save that debate for another time. The bill recently passed in the House and is awaiting results from the Senate.
Okay, back to financial planning. Murawski says this:
"Whether it was Trump or Clinton in office, you would lay it out the same way. You need a balanced portfolio, also known as an 'all-weather portfolio'. If you look back in the past 100 years, it didn't matter if a Democrat or Republican was in the office, the fundamentals have always stayed the same."
So, what's the deal with an all-weather portfolio and what are the fundamentals of creating one?
First and foremost, be a long-term investor.
Don't worry about the next 6-12 months. Instead, focus on the 10-30-year track. Things will fluctuate short-term, but building a portfolio for long-term changes will guarantee success.
Own a couple different baskets of stocks.
First off, get comfortable with these terms:
Large Cap Growth companies have earnings that are expected to grow at an above average rate relative to the market. Instead of paying a dividend they often prefer to reinvest retained earnings into growth projects for the company.
Large Cap Value includes companies in which their intrinsic value is higher than their stock market value. You're essentially keeping an eye out for stocks that are "on sale".
Mid Cap includes companies that you may not recognize, but are still public, and have more growth potential than large cap companies but less volatility than small cap companies. They are usually valued between $2-10 billion.
Small Cap Stocks are companies worth $300 million to $2 billion with a small market capitalization. These companies tend to offer more long term growth potential than large and mid cap stocks but have increased volatility.
International Stocks are companies that are, well, international. This adds a layer of diversification by investing outside of the U.S.
Diversifying your portfolio with these asset classes will help you create a strong all-weather portfolio to withstand whatever regulations may get passed in the near future.
Think about a bonds portfolio.
Bonds are usually left as an afterthought in building a portfolio, but Murawski says they're just as important. To refresh, a bond is considered debt investment in which you, the investor, loans out money, usually to a corporation or governmental institution at a variable or fixed rate.
Companies usually look to bonds when they don't want to take out a loan from the bank for a new project. As the investor, you gain money from the maturity of the bond.
So, why bonds instead of just stocks? Here's Murawski:
"Let's say that you were in 20 percent bonds and the economy crashes. When the market is at the lowest, bonds can give you cash on hand. They're a great way to add shock absorbers to your portfolio. If the markets are all over the place, bonds are your safe money and spreads out the risk in your portfolio."
The final takeaway?
I'll let Murawski tell it:
"It is important not to become too emotional. I have clients that are super liberal and others that are very right-winged and I have to be very factual. Whether they love or hate Trump, it's key to take the emotion out of it and focus on the fundamentals. You have to be smart."
He leaves us with this:
"Stick with the fundamentals. You want to have a very boring, very un-sexy portfolio. You don't wanna be wearing high heels in the market. Wear something generic. You want the Prius, not the Ford Mustang. That's the portfolio."