What will Donald Trump do for the stock market?

It has been one week since Donald Trump became our 45 president elect. Unless you have had your head in the sand for the last year, you know how controversial this election has been. Especially now after Donald Trump’s historic upset over Hillary Clinton.

I’ve stated before on this blog that I am fairly moderate. I am rather conservative economically (less government, low taxes, pro small business) and quite progressive socially (more gun control, gay marriage, marijuana legalization for tax revenue, pro choice). I truly believe a lot of Americans feel this way and are squarely in the middle of politics as “moderate”.

However, roughly 50% of the country woke up last Wednesday on November 9th to a president they are severely disappointed with. Well, regardless of where you stand, what’s done is done and its time for us all to look ahead to four years with Donald Trump as our president of the United States of America.

What comes next for the markets after Donald Trump’s win

Did you know the market dropped $1 trillion Tuesday night during the election as it became more and more clear Donald Trump was going to be our 45th president elect? However, less than 24 hours later on Wednesday, the markets closed by being up $1.3 trillion. Meaning the market capitalization Wednesday once we knew Trump was elected actually gained $3 billion.

Regardless of your political affiliation, the one thing we can all agree on is a thriving economy with excellent job creation, as well as a thriving stock market. It obviously remains to be seen what exactly Trump can and will do with our economy and stock market. I’ve read a ton of articles over the last few days and the consensus seems split (shocking, huh?). A number of both financial pundits and economists sees pros and cons to Trumps overall plans.

The one thing I can say with absolute certainty, and I know every sane financial planner and economist would agree with me on, is to continue investing. NOT investing because you don’t like the president is a really uneducated, emotional reaction you will strongly regret later in life. This type of conjecture is out there every time we have a new president and half the country is disappointed and expecting the worse. Not the case.

Donald Trump does not dictate your personal success or financial well being. You can become wealthy under any party in control at the White House. You can also go dead-broke and be in debt up to your eyeballs with any president.

Let’s say those who vehemently oppose Trump are right (Democrats and many Republicans do) and he turns into an abject disaster. Without saying that is really bad for the short term, but long term (investing-wise) it would be a market correction. If you keep investing during a “bad” market over the Trump term then you essentially get to buy more funds on sale.

I once read in a finance book where Warren Buffett was quoted as saying you actually want a down market to buy stocks at cheaper prices. If you invest regularly, you want to buy them at a good value, not at their highest each and every time. He liken it to someone who eats meat every day…you do not want meat prices to keep rising do you? Same goes for those who buy into the stock market regularly.

What to do now that Trump will be President?

All I want to stress to my readers is to live below your means. Spend well less than you make. Save substantially more than what feels comfortable (at least 15%, if not much more). Try not to compare yourself to others and keep up with the Jones. Invest regularly into diversified index funds for the long haul. And repeat.

You control your own financial independence. Not Donald Trump, not Hillary Clinton, not the government. Its time to move on and take matters into your own hands. Please, please, please keep investing into the stock market. This is your only way to get wealthy but it will take time…like another 3-5 presidents actually. So don’t let this one (Trump) get you down. Keep on keeping on and invest.

Last Week Stock Market (Nov 7-11, 2016)

Last week, Nov 7-11, 2016, the stock market finally saw some positive energy after a few tough weeks. What sparked the change? Oh, this little event called the presidential election. Much to America’s surprise, Republican candidate Donald Trump was elected our 45th president over Hillary Clinton.

What did that mean for the stock market? Well the S&P 500 saw its biggest one week gain in nearly two years. The Dow Jones Industrial Average had its largest one week gain since December 2011, closing at a record high on Friday. Initially that was not the case Tuesday night during the election. As everything was unfolding, Dow futures were down nearly 800 points Tuesday night. That changed rather quickly first thing Wednesday as the Dow rebounded.

Since 1944 stocks have risen by an average of 12.2% over the two years following the election. Trends like this are meant to be broken, but I am optimistic stocks gain near this clip. Given our recent bull market run over the years, I would expect the 12.2% average to be more in the 9-10% range, which is still fantastic.

Last Week’s Stock and Bond Index Performance (Nov 7-11, 2016)

  • NASDAQ 3.8% (YTD 4.6%)
  • Dow Jones Industrial Average 5.4% (YTD 8.2%)
  • S&P 500 Index 3.8% (YTD 5.9%)
  • U.S. Aggregate Bond Index -1.8% (YTD 3.1%)

How did my retirement portfolio perform last week (Nov 7-11, 2016)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard Small Cap Value Index Fund (VSIAX) 7.7%
  2. Vanguard Extended Market Index Fund (VEXAX) 6.7%
  3. Vanguard S&P 500 Index Fund (VFIAX) 3.9%

Year-to-date my retirement portfolio is up 8.1% (the S&P 500 is up 5.9% YTD). I am my own portfolio manager. I don’t have help from a Certified Financial Planner or Advisor. I was a liberal arts major and I do all my own research on investing by reading regularly. My philosophy is to use low-cost index funds and its been working for a decade.

Last Week Stock Market (Oct 17-21, 2016)

Last week, October 17-21, 2016, the market was up slightly, with the NASDAQ, S&P 500 and Bonds all doing well. This market increase was driven by the beginning of the third quarter’s earnings season where several technology companies beat earnings expectations, however, some very large companies failed to meet them. I am a strong believer in Paul Merriman’s “Small-Cap Value” philosophy and owning a large number of this sector in your portfolio. My U.S. stock exposure is approximately 60% large-cap and 40% small/mid-cap. Next week the GDP for the third quarter will be reported, so we’ll see what that does to the markets.

Last Week’s Stock and Bond Index Performance (October 17-21, 2016)

  • NASDAQ 0.8% (YTD 5.0%)
  • Dow Jones Industrial Average 0.0% (YTD 4.1%)
  • S&P 500 Index 0.4% (YTD 4.8%)
  • U.S. Aggregate Bond Index 0.4% (YTD 5.3%)

How did my retirement portfolio perform last week (October 17-21, 2016)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard Total International Stock Index Fund (VTIAX) 1.1%
  2. Vanguard Target Retirement 2040 Fund (VFORX) 0.7%
  3. Vanguard Small Cap Value Index Fund (VSIAX) 0.4%

Year-to-date my retirement portfolio is up 7.1%. I am my own portfolio manager. I don’t have help from a CFP (certified financial planner). I was a liberal arts major and I do all my own research on investing by reading regularly. My philosophy is to use low-cost index funds and its been working for a decade.

What are widows and orphans stocks?

Simply put, “widow-and-orphan stocks” are low-risk stocks with very low volatility and high dividend yields. They are generally rock-solid investment choices that one could recommend to just about anyone, including widows and orphans, hence the name “widow-and-orphan stock”.

So who wouldn’t want a slow and steady stock, with little volatility and a great dividend? Of course we all do. Finding great “widow-and-orphan stocks” these days is very challenging, given the market’s volatility over the last number of years and decades. GM felt indestructible…until 2008 hit. So what should you look for?

It’s best to focus on quality, as well as stability, but know that nothing is invincible. If you follow this blog you know I feel very strongly about index fund investing being your one and only solution within your portfolio. Looking for one specific stock that’s a “safe investment” is a loser’s game. Instead, you should diversify with a “widow-and-orphan mutual fund”, not stock.

My 3 favorite widow-and-orphan mutual funds

Vanguard Balanced Index Fund Investor Shares (VBINX)

This is more of a conservative fund, with a 60/40 stock/bond split. It’s very low cost and extremely well diversified. What I like best about this Balanced Index fund is it broad diversification, holding more than 3100 stocks and more than 6700 bonds.

Vanguard Wellington Fund Investor Shares (VWELX)

The Wellington fund is Vanguard’s oldest mutual fund and the nation’s oldest balanced mutual fund (established in 1929). Its stock/bond split is very similar to the aforementioned Balanced Index fund (2/3 stocks, 1/3 bonds). While the Wellington is diversified, it’s nowhere near the Balanced Index fund. The Welling holds approximately 100 stocks and 800 bonds.

Vanguard LifeStrategy Moderate Growth Fund (VSMGX)

The LifeStrategy Moderate Growth fund is comprised of four underlying funds; Total US Stock Market, Total US Bond Market, Total International Stock Market, and Total International Bond Market. So again, very diversified, but at a slightly higher expense ratio than the Balanced Index Fund.

In my opinion, a widow, an orphan, or anyone who is more risk-averse, would be well suited for one of these balanced mutual funds. I wouldn’t recommend to a Millennial as an early investment vehicle, but once you get into your 40’s, 50’s, and certainly during retirement, absolutely.

Millennials, Don’t Be a Day Trader

I am not a fan of day trading stocks at all. I really want to stress this to Millennials as well. Your investing goals should all be long-term focused, e.g. a buy and hold strategy, not buy and sell in the same day.

For those of you new to the term “day trading”, its simply the process of buying and selling an individual stock in the same day. Day traders try to profit by leveraging large amounts of capital to take advantage of small price movements in highly liquid stocks.

Day trading is essentially attempting to buy low and sell high in the same day. A day trader is absolutely trying to time the market, which is a losers game.

I recently listened to The Motley Fool’s Rule Breaker Investing podcast where co-founder David Gardner discusses low-risk stocks. His premise was that lower risks stocks typically beat the market, e.g. the S&P 500. However, when you look up his calculation you’ll see its a 25-point evaluation!

When measuring a stocks risks, there should be a number of factors involved, like profitability, cash, growth, competition, market cap, P/E ratio, etc. I get it. There is a ton of work involved when trying to find the perfect stock. But that is exactly my point…being a day trader is a losers game. Its impossible for a day trader to know all these factors and actually beat the market.

Your best investment option is without a doubt to buy and hold an index fund for the long term.

How did the stock market do last week (Sept 19-23, 2016)?

Last week, September 19-23, 2016, the stock market was higher on the week, with most of the gains recorded after the Federal Reserve announced it would keep short-term interest rates steady. Volatility should remain in response to speculation over potential rate hikes and other major global uncertainties, including the impacts of Brexit, China’s slowdown, and the U.S. presidential election.

Last Week’s Stock and Bond Index Performance (September 19-23, 2016)

  • NASDAQ 1.2% (YTD 6.0%)
  • Dow Jones Industrial Average 0.8% (YTD 4.8%)
  • S&P 500 Index 1.2% (YTD 5.9%)
  • U.S. Aggregate Bond Index 0.4% (YTD 5.5%)

How did my retirement portfolio perform last week (September 19-23, 2016)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard REIT Index Fund (VGSLX) 4.1%
  2. Vanguard Total International Stock Index Fund (VTIAX) 3.0%
  3. Vanguard Extended Market Index Fund (VEXAX) 2.2%

Year-to-date my retirement portfolio is up 8.9%. I am my own portfolio manager. I don’t have help from a CFP (certified financial planner). I was a liberal arts major and I do all my own research on investing by reading regularly. My philosophy is to use low-cost index funds and its been working for a decade.

Investing Excellence

Virtually every time I read a business or money book, I instantly relate it to my own personal (finance) situation and how I can benefit from it. Well I just finished listening to Daniel Goleman’s audiobook Focus: The Hidden Driver of Excellence, and thought about how I could apply his thoughts to my personal finances and investing practices.

Focus discusses how one’s attention to detail ultimately dictates how we navigate through life, successfully or unsuccessfully. Its as simple as paying attention. Luckily focus and concentration isn’t something you’re born with, its learnt and developed over time. So there is hope for all of us still!

Focusing on Finances Is Your Path to Prosperity

The ability to focus is a key to excellence, in our personal, professional, and financial lives. I stress this constantly on my personal finance blog right here, that you do not need to be in finance or be a CPA or CFP in order to manage your finances well. In fact, you can do really well on your own if you simply focus on the situation and educate yourself on the topic.

Focus on a Budget

I personally have sharpen my focus on my own personal finances and it has paid huge dividends. I am living proof that if you just start paying attention to your finances, e.g. creating a budget, you can begin to prosper exponentially with money.

Focus on Debt

I feel I’ve always had laser focus on retirement since graduating college. But I wasn’t concentrating on my personal finances as a whole. I had to create a budget to manage my expenses and begin assigning money to paying off my debt. I wasn’t concerned with short term/immediate debt, e.g. student loans, car loans, and credit cards. I was only focused on retirement. If I was saving for retirement it didn’t matter what I was doing in the short term because I thought my long term approach was sound.

Focus on Living Below Your Means

It took me a few yeas before the light went off and I realized I needed to create that budget and begin living below my means. Simply put, that is the only way to achieve wealth (unless you inherit it)…is to spend less than you make and save the rest. And by save the rest, I actually mean save that first, at least 15-20% if not more, then use the rest for your expenses. Follow the old adage of pay yourself first.

Focus on Investing

Once you have the previous steps on personal finances mastered, all you have to do is invest. Take that money you’ve saved and invest like crazy in low cost index funds. Invest in your work 401(k), max out a Roth IRA, go back to your 401(k) and max it out. Then considering investing outside your retirement plans in well diversified mutual funds, like a total stock market index fund or an S&P 500 index fund.

Soon you will be on your way to investing excellence and financially independent.

Retirement Plan Fees and Expenses

Keeping your retirement plan fees low is paramount in a successful retirement plan. Once you know your target retirement asset allocation, the next step is selecting your funds and making sure those mutual funds and/or ETFs are very low cost with minimal expenses. A funds expense ratio is the cost of owning the fund.

Most financial advisors say the standard benchmark of a good retirement expense is 0.50%. Some financial advisors say you should actually strive to be even lower with a 0.25%. I agree with the latter, because, obviously, the lower the better. I am proud to say that my expenses currently sit at 0.08%.

I have an extremely low expense ratio and this is across my entire retirement portfolio, including my employer sponsored 401(k), my personal Roth IRA, and my wife’s Roth IRA. While a 0.08% expense ratio sounds hard to accomplish when the benchmark is 0.25%, its really quite easy to do with low-cost index funds.

I invest solely in Vanguard funds across all of my accounts. The bulk of my holdings are in the Vanguard 500 Index Fund Admiral Class (VFIAX), which has a microscopic 0.05% expense ratio. In fact, I believe that is the lowest possible fund fee on a mutual fund or ETF. You won’t find anything lower than that. My most expensive fund is the Vanguard Target Retirement 2040 Fund (VFORX) at 0.16%, which is still very low and well below the 0.25% benchmark.

According to The Motley Fool, the current average expense ratio of an actively managed mutual fund is 1.50%. This is really high. Its obviously a lot higher than the above benchmark of 0.50% and way more than my personal expense ratio of 0.08%. To help you understand what this actively managed fund fee of 1.50% means, say one year your fund is up 10% on the year, well after expenses its actually only up 8.5% after fees. If your fund is flat one year, you actually lost -1.50% in the market because of your management expenses.

To make the math even easier, I am going to compare the actively managed expense ratio of 1.50% to the 0.50% benchmark most financial advisors aim for. So a full 1% lower. What does that mean for your investments over the long term? Probably a much bigger hit to your potential future wealth than you think.

Future Value with a 1.50% Expense Ratio ($831,000)

Let’s assume you open an account with $1,000, invest $500 monthly for 30 years, and earn 9% annual returns after expenses. Compounded over 30 years, your final investment final would be worth $831,112.91. That’s actually a great return and a hefty final balance. But could you do better simply by investing in index funds versus actively managed funds that are much more expensive?

Future Value with a 0.50% Expense Ratio ($1,000,000)

Now let’s assume you did the exact same as the above, only you earned 10% annual returns versus 9% due to your lower expense ratio. Compounded over 30 years, your final investment final would be worth $1,004,413.54. That 1% expense ratio equates to nearly a $170K difference. The difference in being a millionaire and just shy.

You can’t control the stock market, but you can help aid your investment returns simply by choosing lower cost funds, particularly index funds.