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Ideal Portfolio to Survive Trump

Donald Trump just won the American presidency. Will that change anything?

All through his presidential campaign, he boasted his ideologies and, very openly, tweeted his thoughts away. He seems to be liked by some given his recent win. However, his win has not changed much in the markets. On November the 9th, when Trump won, the S&P500 closed up 23.62 (1.10% ) and the TSX closed up 99.49 (0.68%) up here in Canada so what is the perfect portfolio to survive Trump?

Although he was talking about tightening the free trade agreements such as NAFTA, the world markets generally ended up positive by the end of the day. Restricting free-trade and imposing tariffs would weaken corporate profits overseas and increase the cost of goods in America. With free-trade, countries can specialize in goods where they have a lower opportunity cost and import goods that would available cheaper somewhere else. This would increase the general economic welfare for all countries. This benefits the consumers importing goods but also the companies exporting goods since a tariff would only increase their prices outside of the U.S. This should have shocked the markets, but it didn’t.

However, Trump did say he would lower corporate taxes which would increase profits and justify the rise of the U.S. market.

Another change I noticed, being Canadian, is that the US dollar gained strength against the Canadian dollar. Earlier on Wednesday, USD/CAD jumped above the 1.35 line (1.35219), the highest level since February. However, I do not worry about the U.S. dollar because of my asset allocation and long-term horizon. I invest in the American market as much as I invest in the Canadian and my allocation smoothen the ride over the long-term. If you are not sure where to start with your allocation, you should start by tracking all your accounts for free with Personal Capital and check out their portfolio analyzer.

 

My Desired Asset Allocation
  • 40% ♦  US Market
  • 40% ♦  Canadian Market
  • 15%  ♦  International Market
  • 5%    ♦  Bonds

 

Your investments and Trump

Now that Trump has won, you should not try to time the market, cash everything out, or change your allocation. You should take a long-term approach and focus on a quality investment strategy rather than individual events. Every single year, you can find a new negative event to worry about; European tensions, Chinese economy, Trump winning the presidency, but you need to stay focused. Keep a long-term investment strategy that will even out your ride down Wall Street. You need to invest logically rather than emotionally. Although this can be very hard for some, there are a few tricks to detach yourself from your investments.

The secret is diversification. If you are globally diversified and spread out throughout all sectors, you are bound to have some that are up while some will go down. On the long-run, diversification will smoothen your journey and ensure you always have your winning share of the pie. 🙂

Another great way to remove your emotions from your money is to use Dollar-Cost Averaging or to invest at each paycheck. I, for example, invest in index funds each and every paycheck, whether the markets are up or down. This allows me to buy when the market dips without thinking about market timing or worrying about it. Taking away the temptation of timing the market will allow you to focus on more important things in life like having fun and smelling lovely flowers.

When you invest at each pay, not only will you stop thinking about it, but you will optimize your total returns. It has been talked about again and again that investing right now is better than investing later. When you set up an automatic investment plan, you effectively invest as soon as the money is available to you and, therefore, optimizing your returns.

When investing immediately, the average one-year returns of the U.S. stock market from 1926 to 2013 has been 12.2%. When compared to Dollar-Cost Averaging, the one-year returns would have only been 8.1%. (Where investing immediately is invested in the S&P500 and DCA assumes 12 months while holding the balance in cash.)  The difference is astonishing!

If your employer offers a 401k plan or any kind of employee savings plan, you should look into it.

 

What is the perfect portfolio?

Focus on life events rather than political events and structure your asset mix around that plan. Over the long-term, most of your returns will come from your asset allocation, not the next president of the United States.

There are some large variations and tweaks to asset allocations that can be analyzed for age or risk tolerance but you need to find what works for you. A great resource for starters to compare your asset mix with the free tools available at Personal Capital or data from websites like Portfolio Charts that compares different portfolios one-by-one. There are a lot of popular portfolios available out there but let’s start with the Classic 60-40 which is comprised of 60% Total Stock Market (VTI) and 40% Total Bond Market (BND). This often serves as the benchmark in most portfolio discussions and has been around for ages as the go-to portfolio.

Best asset allocation portfolio for your age

The average rate of return on this portfolio since 1972 has been of 5.8% with a low standard of deviation of 11.6%. In other words, this will earn a nice return without too many swings. This is solely based on American holdings and includes all capitalizations; from small start-ups to large behemoths.

Best asset mix for you

The Three-Fund Portfolio is very similar to the Classic 60-40 but adds in international exposure to the mix. This one includes 40% Total Stock Market (VTI), 40% Total Bond Market (BND), and 20% Total International Market (VXUS). The average rate of return on this portfolio since 1972 has been 5.8% with a low standard of deviation of 11.4%. As you can see, this is very similar to the Classic since the stocks vs. bonds allocation are the same. The major difference is that, with some international equities, the market swings might not be correlated. Once you are in a withdrawal phase, you can then choose to sell off the highest of the two if one is experiencing a correction.

Best index fund asset mix for you

Finally, the Total Stock Market Portfolio is a very popular choice within the early retirement crowd. Popular bloggers such as JL Collins advocate that you only really need to stick with one single fund; the Vanguard Total Stock Market Index Fund (VTI or VTSAX). This stupidly simple allocation offers great diversity at a hyper-low cost. With the mix of large-, mid-, and small-cap equity diversified across growth and value styles and an expense ratio of only 0.05%, VTI can be called a portfolio of its own. It holds over $468.8 billion invested across 3613 companies in America. The average rate of return on this portfolio since 1972 has been 7.5% with a standard of deviation of 17.7%. The deepest drawdown has been of 51%, which might frighten some, but the higher returns certainly show over the long-term. If you live in the US, I suggest you look for the Admiral Shares (VTSAX) given the low fees and flexibility it offers.

These are only 3 very basic asset allocations but I highly suggest that you research and compare your asset mix options with the free tools available at Personal Capital. You can also compare the data of 15 different portfolios at Portfolio Charts.

Now, remember life goes on and stay happy. Xyz.

 

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2 Comments



  1. Did you see the recent post by JLCollinsnh?
    He discussed recently his position on the one stock fund
    http://jlcollinsnh.com/2016/09/15/stocks-part-xxx-jlcollinsnh-vs-vanguard/

    As for me here in Canada I do 60 VXC 30 VCN and 10 VAB for my portfolio breakdown.

    • Xyz

      November 22, 2016 at 12:21 pm

      Yes, this is a much better post to link to for JL 🙂

      We are Canadians too! I simply show the American symbols but we do own VUN, VCN, VAB also. You can check out our whole portfolio in our Open Book series.

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