Do You Bet The Nest Egg on Mr. Trump?
Ever since the election last November a lot of people have been asking themselves, “OK, now what?”
Mostly that question comes in the big historical context. Now how do we save the planet? How do we make sure America stays America instead of something that feels more like Europe in the 1930s? How the hell do we heal our divided nation when the modus operandi of the guy in charge is to divide and disrupt?
A smaller, more selfish question may also have occurred to you. What happens to your nest egg now that it’s gotten dropped into the middle of all this political disruption? I know this is a big question for me. I’ve been trying to step back from the politics and think dispassionately about what might be the answer.
So far the economy has shrugged off a lot of the big scary questions. The stock market is up huge since the election. Companies are doing well. Unemployment is low. Business leaders are optimistic about the promise of tax reform, deregulation and infrastructure spending. It’s been a great time for investing and the monthly statements from my 401K are happy reading.
But then I pick up a newspaper and read about the next crazy Tweet. The next scandal.The next story about how no one in the government can figure out how to work the light switches in the White House.
Investing is a matter of balancing risk and return, and the risk side of the equation is anybody’s guess right now. It got even more uncertain when the long-awaited Republican promise of healthcare reform landed with a resounding belly flop. The big money managers have to be recalculating how many of the other promises they’ve been betting on are likely to be kept.
So do you trust the strong economy and optimistic stock market? Or do you start worrying about the unknown risk and stick some money in the metaphorical mattress?
I can’t answer that. No one can. But I did discover a useful context for thinking about it all. I do a fair amount of reading about business and the financial markets, there’s one phrase I see over and over:
“Under-promise and over-deliver.”
Companies issuing their quarterly business updates report numbers that blow away expectations. Then offer conservative guidance about the next quarter so they can turn around and blow away expectations all over again. The financial markets love it when this happens. The share prices of companies that under-promise and over-deliver march steadily higher.
I think this is because a lot of the money people remember the big tech melt-down at the beginning of this century, which came from over promising and under delivering. People called it a bubble and I suppose it was. But mostly it was the polar opposite of under-promise and over-deliver. The tech economy was overheated by all sorts of big promises. Then it became clear that there wasn’t anything being delivered. Just a lot of self appointed geniuses making big bets on dumb ideas with other people’s money. Everyone headed for the exits at the same time. The value of high flying tech companies dropped 80 or 90 percent in the blink of an eye.
If I put on that dispassionate hat I was talking about and just think about my fragile little nest egg, the last eight years felt a lot like under-promise and over-deliver. People faulted President Obama for not selling his programs hard enough, so there was the under-promise. For the most part the economy soldiered on and slowly-but-steadily recovered from the Great Recession. Unless you had all your money in a savings account collecting .000001 percent interest you did pretty well over time. The economy likes the certainty of under-promise and over-deliver.
The beginning of 2017 feels a lot more like the wild over promise of the tech bubble. Great healthcare for everybody at a cheaper price. A secret plan to defeat ISIS. All the coal and manufacturing jobs coming back. Tax cuts plus $1 trillion in new infrastructure. So is the economy back to partying like it’s 1999? We have yet to see whether the under-deliver part comes true. But put the politics of it all aside for a minute and think in terms of the risk an uncertain economy might bring to your own financial picture — do those really sound like the sort of promises that are likely to come true with the ease that a hot stock market is betting on? Personally I’m doing what I can to get my nest egg ready for some pain.
