Learning the hard way from 2016 to anticipate 2017

For the stock markets, 2016 was an excellent year. The DJIA or Dow Jones Industrial Average went up by 13.4 percent. The Standard & Poor went north by 9.5 percent. The beginning of the past year, however, was not promising at all. The DJIA at that time plummeted to record lows and the markets crashed 10 percent. No sensible investors would have foreseen a good end to such an abysmal beginning. The present glory days came after a much choppy performance due to Brexit, and problems in Europe. US markets went up a little sensing a Democratic comeback to the White House, and other than a little panic at the prospect of Donald Trump becoming President of the United States, again went up ironically due to the latter.

Opacity of markets

The truth is that the markets are not transparent. They go up and down depending on the anticipation of events by Wall Street. Once the external factors are resolved, the policy decisions begin to affect the markets. These can be direct, like business regulations and tax reform, or it can be indirect, like domestic policy and foreign policy. Changes in the Affordable Care Act or ACA also influences the stock market. The ACA is colloquially known as Obamacare.

The first 100 days of the Trump presidency will be crucial. Investors must be extremely cautious about predicting the market during this period. It is better to take a longer view of the market financials and keep in mind two tenets.

Cash is compulsory

Do not invest cash in stock market. Keep it for your quick requirements in a money market account or a savings account. If you need a certain amount of cash within the next four years, then buy Certificate of Deposits which will mature within 2019. You can also invest cash in a bond fund of shorter duration. This will minimize risk of you forced to sell the stock market investments during markets’ downturn. Having cash reserves also provides an unmatched emotional boost.

Review the allocation of assets

You must be aware of exactly how much proportion of your portfolio gets vulnerable to stock market vagaries. This will enable you to calculate how much you will be affected by the market’s short term swings. When you know this, you will be comfortable with the quantum of money that you have already invested in the market.

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