Concerns are mounting about the impact political turmoil in Washington might have on the financial markets.
The S&P 500 might have reached a record high last week, but Friday’s sharp decline stirred fresh worries. There’s growing anxiety that tariffs, along with moves from the Department of Government Efficiency, might slow down the economy.
Trying to keep up with political developments and decipher their impact on the financial markets feels like attempting to drink from a fire hose.
Friends, family, and subscribers constantly ask my opinion on how President Trump’s policies might affect the market. What they genuinely want to know is, “Is my money safe?”
It’s a perfectly reasonable concern, but there are ways to alleviate that constant worry. Here are a few strategies that can help investors feel more secure about their investments.
- Consider Your Investment Timeline
When will you need the money you’ve invested? I always recommend that any funds you’ll need within three years should stay clear of stocks. Markets can be unpredictable over shorter timelines, so if you anticipate needing those funds soon, it’s wiser to shift them to safer options like money markets, CDs, Treasurys, or investment-grade bonds. Real bonds provide the assurance of a set value at maturity, unlike bond funds, which can fluctuate.
- Implement Trailing Stops and Right-Size Positions
If you’re uncomfortable with a potential drop in the market, use a trailing stop below your purchase price. At The Oxford Club, we use a 25% trailing stop. For instance, if a stock is bought at $100, the stop price starts at $75. Should the stock climb to $120, the stop rises to $90. Trailing stops align your stop loss with increasing stock value without ever lowering it. It’s a sensible way to avert crippling losses and preserve your profits.
Furthermore, The Oxford Club advises that no single position should comprise more than 4% of your whole portfolio. This way, if you face a 25% loss, your overall portfolio only dips by 1%, making recovery more manageable.
- Consider Buying Puts
Puts are options that bet a stock or index will fall, essentially serving as insurance. Like any insurance–say for a home–you hope never to need it, but when calamity strikes, you’re relieved to have it on hand.
Naturally, there’s a cost. For instance, purchasing $1,000 of puts to insure a $100,000 portfolio means if the portfolio grows by 10%, the net increase amounts to 9% since the puts would lose their value. Yet some might find this trade-off acceptable, as their portfolio stays safeguarded in a downturn. Just remember, like any insurance, the expense is a factor to weigh.
- Choose to Do Nothing
If you’re an investor in it for the long haul, and you have years to allow your portfolio to expand, drastic measures aren’t necessarily required when a bear market hits. Keep tabs on your stocks, and if nothing fundamental has shifted for a company, sticking to your guns might be the best approach. If it’s purely a bear market situation where everything declines but the company remains robust, there’s no urge to sell. Bear markets tend to happen every 3 1/2 years, lasting about 9 1/2 months on average—not really long at all.
Remain steady, resist the impulse to bail out, and even consider buying stocks at reduced prices during such phases. These actions pave the way for long-term benefits over making a hasty retreat in fear of permanent loss.
Craft a Plan and Remain Committed
Contemplate right now about handling future market volatility, considering it an inevitability, irrespective of who sits in the White House or runs Congress. It’s part of the market’s natural rhythm, and your ability to manage this volatility will play a key role in growing your portfolio.
