Remember the Brexit fizzle if you hear market experts telling you how to position your portfolio for a U.S. election victory by Donald Trump.
I write this just after reading an e-mail pitching an interview with a money manager about U.S. election-proofing your portfolio. The pointlessness of positioning a portfolio for a particular news event couldn't be clearer than it is in the strong stock market performance following the June 23 referendum vote in Britain to leave the European Union.
Stocks initially tanked on news of the win for the exit side of the debate and the level of panic was, briefly, quite intense. But things settled down quickly. In fact, major North American stock indexes were up about 4 to 5 per cent for the past 30 days.
There wasn't a lot of talk about portfolio positioning for Britain to leave the EU because the "stay" side was expected to win. But let's say there was a lot of nervous chatter. If you'd made changes in your portfolio to be more defensive, you would have lost out when the markets shook off the referendum results and marched higher. We got the worst possible outcome from the Brexit vote for the stock markets, but they survived.
A win by Mr. Trump in the U.S. presidential election in November could be a shock for stocks, although such a victory would presumably be predicted by polls. But planning ahead for any outcome – a win by Mr. Trump or by Hillary Clinton – is guesswork that leaves you vulnerable to making wrong choices. These mistakes could end up being costly in terms of both lost gains and commissions paid on trades.
It happens that the story pitch for U.S.-election proofing your portfolio actually had some useful advice. It recommended that you maintain a proper asset allocation, maximize tax saving opportunities and keep your emotions in check. These are Investing 101 ideas for building a durable long-term portfolio that can survive whatever happens in the world – Britain leaving the EU or Mr. Trump winning the U.S. election.