Dec 24 2016
Who could have thought a year back that the new President of United States of America would be Donald Trump? He announced his candidacy in 2015 June in an event where he called Mexican rapists and before that he wasn’t considered anything better than a slideshow. In the year 2012, he contemplated a run but then decided to go against it, his political goals were made fun of on cable television.
Noone knows what’s in store for the upcoming year. Hence, there are definitely some lessons which the investors and consumers can learn from this election. What are some of them? Read on to know about some such financial lessons.
Lesson #1: Expect something that you’ve never expected
It is true that none of us can foresee the future with 100% positive and accurate results. Just as meteorologists struggle to only forecast the weather for a few upcoming days, investors and politicians also do the same. Just as you think you have figured out everything, stay prepared to incur more losses. This gave birth to the phrase ‘Black Swan’ in the financial market which is an event, either negative or positive which is not considered as something very probably but which leads to some massively bad results.
A few weeks ago, the election seemed like a foregone conclusion but then we saw a dramatic change in the results. Investors should learn from this and understand the fact that events occur and it is not possible for anyone to foresee and predict everything correctly. If you want to incorporate this particular lesson into your investment portfolio, diversify your assets. Don’t have all your nest eggs at the same place.
Lesson #2: It is extremely important for investors to manage risk
Hillary Clinton was considered as the ‘risk’ and Donald Trump as ‘uncertain certainty’ and the win of Trump clearly indicates that the market hates ‘risk’ more than ‘uncertainty’. For the first time, the electors chose a candidate who they expect will cause as less damage as is possible to the nation. Doesn’t this seem to be similar to the goal of the investor to minimize the risk?
Here too, investors can take away few lessons among which the most important is diversification of portfolio. Volatility should be decreased and this can be best done through diversification of portfolio.
Lesson #3: Don’t count blindly on the trends and predictions
Though this sounds simplistic but the idea of ‘reversion to the mean’ is definitely one of the most important concepts in the investment industry. The main idea followed by the investors is that the sectors which don’t perform well as compared to the long-term historic averages will basically go through a period of short term outperformance.
If you follow the trends and always keep believing that everything is true which you reach in the news, this can result to a sense of fear. Whether it is politics or investment, it is vital that you carry on with your own research and try to shape an opinion of your own. There are times when the underdog sectors, stocks and mutual funds may become great leaders in the upcoming years to come.
So, now that Donald Trump is the President-elect of United States of America, you as a layman, can learn the above mentioned financial lessons from the episode of elections that we recently witnessed. Stay aware of the stocks and mutual funds and don’t forget to diverse your investment portfolio so much so that you can always earn income from any of your financial assets.
Image source: http://www.usnews.com/news/articles/2016-05-05/donald-trump-to-strike-campaign-finance-deal-with-rnc