Asset allocation post-election

[startingsmall]

Hopefully this isn't too political, but are you making any changes to your asset allocation at this time?

Some people are voicing concerns about a recession, and moving more money to cash. Others are expressing inflation concerns, which means cash is the worst possible option.

I suspect I'll probably stay the course and not make any changes, but I'm curious to hear whether others are making adjustments.

[GuitarStv]

No changes to allocation.  I'm debating if I want to work another year or two to deal with the likely problems associated with the US starting trade wars everywhere and driving an economic crisis though.

[Raenia]

I'm debating beefing up our cash emergency fund, though I acknowledge it'd be more for peace of mind than actual expectation of needing it. So I probably won't end up doing it.

[Tigerpine]

I've been starting to consider putting more new investments into TIPS, but that is not entirely related to the election outcome.  I'm getting older, and I've been starting to think a little more seriously about my non-equity position.

[ChpBstrd]

No changes.

The big run-ups in crypto, certain meme stocks, and of course DJT have already been priced in. Tariff wars and higher spending were hallmarks of Trump 1.0, but it's also possible a lame-duck Trump, 4-8 years older, with fuller control over both houses of Congress, a captive Supreme Court, and fresh court rulings giving him full immunity for anything might go a different route.

Money & Macro illustrated the paradox.

I think if Republicans utilize their control over all 3 branches of government to go on another pork barrel spending spree, the growing size of government will increase GDP. Tax cuts could increase the present value of future taxable cash flows, thereby inflating asset prices further. Rising inflation is the theoretical outcome of tariffs, economic overheating, and rising deficits. Yet as we saw over the past 8 years, inflation can take years to materialize after its theoretical causes have emerged.

OTOH, if Elon Musk's Department of Governmental Efficiency (note acronym suspiciously close to Dogecoin) actually cuts government spending dramatically, a recession will be more likely. Tax cuts have co-occurred with recessions, rather than preventing them, for a long time.

In either scenario, we could see the bursting of asset bubbles in housing, CRE, stocks, or debt. For that reason, I'll stay mostly hedged and mostly in stocks. 

[GuitarStv]

OTOH, if Elon Musk's Department of Governmental Efficiency (note acronym suspiciously close to Dogecoin) actually cuts government spending dramatically, a recession will be more likely. Tax cuts have co-occurred with recessions, rather than preventing them, for a long time.

Trump's 10% across the board tariffs wouldn't be too good for the world economy (or that of the US) either.  Also the idea of mass deportation of all the cheap undocumented workers that the US relies on would also drive prices significantly higher and be damaging.

[ChpBstrd]

OTOH, if Elon Musk's Department of Governmental Efficiency (note acronym suspiciously close to Dogecoin) actually cuts government spending dramatically, a recession will be more likely. Tax cuts have co-occurred with recessions, rather than preventing them, for a long time.

Trump's 10% across the board tariffs wouldn't be too good for the world economy (or that of the US) either.  Also the idea of mass deportation of all the cheap undocumented workers that the US relies on would also drive prices significantly higher and be damaging.

Sounds like you're foreseeing stagflation. In that event, it might be a good idea to buy gold. And I almost never say that.

GLD is actually four bucks cheaper than it was before the election results were announced. Republicans are selling their safe haven assets, now that all is well with the world and America is going to be great.

Those with a stagflation forecast might have an interest in buying the dip.

[curious_george]

No changes.

It seems like any number of scenarios are likely to occur, and are impossible to predict.

[secondcor521]

I make asset allocations based on the following inputs:

My remaining life expectancy
My spending rate as a percentage of my assets
My non-portfolio income
The historical performance of the various asset classes

Election results are not an input for me.

I have been >90% US equity index mutual funds since 1987, and have been 97%+ for the past several years.  Currently at 99%+.

[Retire-Canada]

Hopefully this isn't too political, but are you making any changes to your asset allocation at this time?

Nope.

My globally diversified index portfolio was designed to be left alone for decades. So the outcome of one election isn't reason to make any changes.

[obstinate]

No change. Changing assets at a time like this is foolish.

[mistymoney]

I've been trying to get a more conservative AA going, and I did pull that trigger today.

Planning to retire next year. So, I now have the $$ for the bond and cash tent I need. I was thinking 5-6 years, but may do a longer one now, but just maybe 8ish years? Idk, still reading around and checking out the SWR series on ERN for more info on the practical side of implementation. I only have 11 years until soc sec, which seems like it will pay around 50% of the annual budget when I get there.

It was really shocking to me the high percent of bonds recommended for the glidepath start point by ERN.

So I was trying to plan for this, but hard to sell my hard won stock position! But - seemed a good time to do it. And still feel like i have a sufficient amount of stock for future oomph! if in fact future oomphs are ahead of us.

[startingsmall]

Thank you all for sharing your thoughts!

I suspected that the best option was not to make any changes, and I now feel validated in that decision.

We're moving later this month, and I AM grateful that we decided to buy a less expensive home than we originally planned. I'm kicking myself for not locking a mortgage rate pre-election, but we should be able to pay off the house relatively quickly if needed.

[FLBiker]

No changes to allocation.  I'm debating if I want to work another year or two to deal with the likely problems associated with the US starting trade wars everywhere and driving an economic crisis though.

Similar.  I've learned that I had no idea 1) what's going to happen and 2) how markets will respond.  And, even though we're at FI, I'm not planning to pull the plug on my enjoyable, low stress WFH job quite yet.  If the job changes, though, I'll still pull the plug.

[GuitarStv]

No changes to allocation.  I'm debating if I want to work another year or two to deal with the likely problems associated with the US starting trade wars everywhere and driving an economic crisis though.

Similar.  I've learned that I had no idea 1) what's going to happen and 2) how markets will respond.  And, even though we're at FI, I'm not planning to pull the plug on my enjoyable, low stress WFH job quite yet.  If the job changes, though, I'll still pull the plug.

You and I share a similar position and thought process!  I'm just waiting for something to get miserable at this point.

[Loren Ver]

No changes.   Our allocation is pretty aggressive, but is has worked well for us for the past 24 years so we plan to keep it that way.  A change in leadership for the country (US or otherwise) isn't enough to get me to change.

DH and I did talk about it, just to make sure we were both on the same page and we are a team.  But we have these little chats every time there is an event that might impact finances (Russian/Ukraine, Covid, US Elections, China Posturing, Tax Policy, Down Markets, etc).   Since we originally retired pretty lean, we have a fall back spending position so if there is something that could trigger that position for a time, I make sure DH is aware, and let him know how our liquid assets are etc.

No surprises are the best surprises.   

Loren

[Laura33]

Thank you all for sharing your thoughts!

I suspected that the best option was not to make any changes, and I now feel validated in that decision.

I think of it this way:  I am a relatively smart, capable person -- I even have an advanced degree.  I can look at various data points and hypothesize a trend.  But I'm doing it as a hobby; I have neither the training nor the time (nor the interest!) to devote to making that a full-time job. 

Who am I competing against -- who are the people who are buying when I'm selling, and vice-versa?  Well, there are thousands of people out there who do have the education and training to investigate potential investments and who get paid a metric shit-ton of money to make the right decisions.  And they largely work round the clock to do so quicker than everyone else. 

So:  how much hubris would it require for me to think that my gut reaction to world events is going to be both (a) more correct and (b) faster than all those thousands of people whose business it is to make better predictions than me and beat me to the punch?  I mean really.

Yeah, I do have some thoughts about what these political events mean to the economy, both short-term and long-term.  But I also assume that even if I'm right, someone else has probably beaten me to the punch and sucked the value out of those possible investments.  So there's just really no point in me wasting time worrying about what the market might do. 

What do I do?  When I have those doubts/concerns, I remind myself that my own financial situation is reasonably protected against downside risks -- not in terms of specific investments, but having no debt except a very low-rate mortgage, maintaining a big chunk of accessible $$,* and keeping my fixed monthly costs low.  Then I ignore everything else. 


*We are closer to retirement and so are actively putting $ into cash and bonds and such, at a level that wouldn't be appropriate for someone much earlier in the process.  But I've always had a powerful need for financial stability and so kept more in cash than many folks.

[GuitarStv]

Trump took a hard stance on foreign trade & tariff’s during his first presidency. His inflation over 45 months was 7.1% vs Biden’s 20.1%. Annualized market return was 12.6% for Biden and 16.3% for Trump.

Inflation happened in nearly every country in the world during the time that Biden was president.  This was a holdover from the supply chain problems caused by covid and the lingering impact of the handouts/shutdowns.  Without taking in mind that global phenomenon, I don't think this comparison is all that valid.

Trump's stated plan this time (10-20% across the board tariffs on all imports and 60% on China) is quite different from his actions the first time around.  Trump has also promised to deport the immigrant workers who do most of the cheap farm labour in the US economy.  I think it would be a mistake to assume that these new plans would cause the same results as the old ones.

The president typically has little ability to impact the economy.  In Trump's case, economists seem to be largely in agreement that his plans will be a net negative for the US though.

[startingsmall]

Trump took a hard stance on foreign trade & tariff’s during his first presidency. His inflation over 45 months was 7.1% vs Biden’s 20.1%. Annualized market return was 12.6% for Biden and 16.3% for Trump.

Inflation happened in nearly every country in the world during the time that Biden was president.  This was a holdover from the supply chain problems caused by covid and the lingering impact of the handouts/shutdowns.  Without taking in mind that global phenomenon, I don't think this comparison is all that valid.

Trump's stated plan this time (10-20% across the board tariffs on all imports and 60% on China) is quite different from his actions the first time around.  Trump has also promised to deport the immigrant workers who do most of the cheap farm labour in the US economy.  I think it would be a mistake to assume that these new plans would cause the same results as the old ones.

The president typically has little ability to impact the economy.  In Trump's case, economists seem to be largely in agreement that his plans will be a net negative for the US though.

Exactly this. My primary specific concern is hyperinflation. This concern is based on proposals to increase tariffs and deport the people who supply much of our labor, in addition to speculation that Trump/Musk/Putin are intentionally setting out to devalue the US dollar in favor of a BRICS or bitcoin based global economy.

[MDM]

Hopefully this isn't too political, but are you making any changes to your asset allocation at this time?

Nope.  Haven't changed them when the political winds blew in different directions in the past either.  Of course, sometimes investments lose value, but so far so good on long term returns. :)

Both political parties forecast doom and gloom should the other side win.  Sometimes there might be good reasons, but mostly it's campaign tactics so "our side" wins and "they" do not.  There are always "experts" who will forecast for pay.

[use2betrix]

In Trump's case, economists seem to be largely in agreement that his plans will be a net negative for the US though.

That probably depends whether these economists are right or left. My news articles that show up when I monitor the S&P 500 have been insanely more optimistic about the market future in the next decade, as opposed to what I was seeing before the election.

It went from “expect 3% annual growth for the next decade,” to seeing, “new forecasts predict the S&P 500 to exceed 10,000 by the end of the decade.”

This forum leans incredibly left, just take a look at the off topic section. Of course all of these people are going to think that everything that Trump does will be negative for our country and a failure.

(FYI, I didn’t vote for Trump, but I’m also not blinded by a single party)

[GuitarStv]

In Trump's case, economists seem to be largely in agreement that his plans will be a net negative for the US though.

That probably depends whether these economists are right or left. My news articles that show up when I monitor the S&P 500 have been insanely more optimistic about the market future in the next decade, as opposed to what I was seeing before the election.

It went from “expect 3% annual growth for the next decade,” to seeing, “new forecasts predict the S&P 500 to exceed 10,000 by the end of the decade.”

This forum leans incredibly left, just take a look at the off topic section. Of course all of these people are going to think that everything that Trump does will be negative for our country and a failure.

(FYI, I didn’t vote for Trump, but I’m also not blinded by a single party)

I wouldn't consider the Tax Foundation, the IMF, RBC, Fitch, Euromonitor, or UBS to be particularly left leaning.

Estimator	Tariff Policy	Change in Real GDP
Tax Foundation	10% Universal	-0.5%
American Action Forum	10% Universal	-0.16% GDP; -0.31% with retaliation
UBS Wealth Management	10% Universal	Cumulative -1.0% to -1.5% over 3 years with retaliation
Peterson Institute for International Economics	10% Universal	10-year range, -0.36% (high) to -0.07% (final year); -0.88% to -0.24% with retaliation
Moody’s	10% Universal	-1.04%, -2.82%, -3.45%, and -3.61% in years 2025-2028, with simulated retaliation
Euromonitor	10% Universal	-0.5% in 2025, -0.9% in 2026, with retaliation (derived from growth rate projections)
IMF	10% Universal	-0.4% to -0.6%, persisting at -0.4% with retaliation
Peterson Institute for International Economics	60% China	10-year range, -0.19% (high) to -0.12% (final year); -0.43% to -0.21% with retaliation
Tax Foundation	10% Universal, 60% China	-0.8%, -1.2% with retaliation
Capital Economics	10% Universal, 60% China	Up to -1.5%
RBC	10% Universal, 60% China	-1.5% after 2 years
The Budget Lab	10% Universal, 60% China	-0.5%; -0.64% with retaliation
EY	10% Universal, 60% China	-1.18% in 2025 and -2.34% in 2026 with retaliation (derived from growth rate projections)
Tax Foundation	20% Universal, 60% China	-1.3%, -1.7% with partial retaliation
The Budget Lab	20% Universal, 60% China	-0.64%; -0.95% with retaliation
The Budget Lab	20% Universal, 60% China, Additional Mexico	-1.15%; -1.43% with retaliation
Fitch	Aggressive US Tariff Scenario	-0.4% to -0.8%; up to -1.1% with retaliation

Tax Foundation review of Tom Lee, “Trump’s Proposed 10 Percent Tariff: Considering the Impact”
Chief Investment Office GWM, “The Economic and Investment Implications of Higher Tariffs”
Warwick J. McKibbin, Megan, and Marcus Nolan, “The International Economic Implications of a Second Trump Presidency”
Peterson Institute for International Economics; Mark Zandi, Brendan LaCerda, and Justin Begley, “The Macroeconomic Fallout of Trump’s Tariff Proposals”
Aiste Bijune and Lan Ha, “US 2024 Election: Implications for the Global Economy”
International Monetary Fund, “World Economic Outlook, October 2024: A Rocky Recovery”
Paul Ashworth, “Trump’s New Tariffs Would Accelerate Global Fracturing”
RBC Wealth Management, “The economic impacts of non-economic policies”
The Budget Lab, "Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios"
Lydia Boussour and Gregory Daco, “2025 and beyond trade policy”
Fitch Ratings, “US-Led Tariff Hikes Under Renewed Trade War Would Reduce US/World Output.”

[MDM]

This forum leans incredibly left, just take a look at the off topic section. Of course all of these people are going to think that everything that Trump does will be negative for our country and a failure.

I....

Speaking of which.... ;)

Economic projections of "experts", whether on the right or left, are notoriously unreliable, and that lack of predictive capability helps explain why index funds outperform most of their actively managed counterparts.

[Retire-Canada]

Based on what Trump said I have not heard of any economists who thought his tariff plans would be good for the economy. But, that was what he said. We have no idea what he will do.

Do you remember The Wall? The Big Beautiful Wall?

He built ~80miles of new wall and then replaced/upgraded ~370miles of existing border structures. Mexico didn't pay for it.

Trump saying something is only loosely connected to him doing it and his voters don't seem to care all that much.

[ChpBstrd]

In Trump's case, economists seem to be largely in agreement that his plans will be a net negative for the US though.

That probably depends whether these economists are right or left. My news articles that show up when I monitor the S&P 500 have been insanely more optimistic about the market future in the next decade, as opposed to what I was seeing before the election.

It went from “expect 3% annual growth for the next decade,” to seeing, “new forecasts predict the S&P 500 to exceed 10,000 by the end of the decade.”

Understanding basic economic concepts like supply and demand, deadweight losses, demand destruction, the effect of interest rate policy on inflation, and the effects of price controls is in a completely different league than trying to predict the future price of a speculative asset whose price at that time will be based on people's expectations for their even-further-in-the-future cash flows.

It's the difference between saying "higher prices will reduce demand" and saying "Dogecoin will hit $50,000 next year." The first is a statement an econ graduate student might say to an Econ 101 class. The second is something an attention-seeking pop author or financial advice salesperson might say to the financial press.

Economists used to be hard-right (e.g. the Chicago school) but have lately shifted toward what counts today as "left". This article describes the split and shows the extent it might matter to academics' publications.

[use2betrix]

In Trump's case, economists seem to be largely in agreement that his plans will be a net negative for the US though.

That probably depends whether these economists are right or left. My news articles that show up when I monitor the S&P 500 have been insanely more optimistic about the market future in the next decade, as opposed to what I was seeing before the election.

It went from “expect 3% annual growth for the next decade,” to seeing, “new forecasts predict the S&P 500 to exceed 10,000 by the end of the decade.”

This forum leans incredibly left, just take a look at the off topic section. Of course all of these people are going to think that everything that Trump does will be negative for our country and a failure.

(FYI, I didn’t vote for Trump, but I’m also not blinded by a single party)

I wouldn't consider the Tax Foundation, the IMF, RBC, Fitch, Euromonitor, or UBS to be particularly left leaning.

Estimator	Tariff Policy	Change in Real GDP
Tax Foundation	10% Universal	-0.5%
American Action Forum	10% Universal	-0.16% GDP; -0.31% with retaliation
UBS Wealth Management	10% Universal	Cumulative -1.0% to -1.5% over 3 years with retaliation
Peterson Institute for International Economics	10% Universal	10-year range, -0.36% (high) to -0.07% (final year); -0.88% to -0.24% with retaliation
Moody’s	10% Universal	-1.04%, -2.82%, -3.45%, and -3.61% in years 2025-2028, with simulated retaliation
Euromonitor	10% Universal	-0.5% in 2025, -0.9% in 2026, with retaliation (derived from growth rate projections)
IMF	10% Universal	-0.4% to -0.6%, persisting at -0.4% with retaliation
Peterson Institute for International Economics	60% China	10-year range, -0.19% (high) to -0.12% (final year); -0.43% to -0.21% with retaliation
Tax Foundation	10% Universal, 60% China	-0.8%, -1.2% with retaliation
Capital Economics	10% Universal, 60% China	Up to -1.5%
RBC	10% Universal, 60% China	-1.5% after 2 years
The Budget Lab	10% Universal, 60% China	-0.5%; -0.64% with retaliation
EY	10% Universal, 60% China	-1.18% in 2025 and -2.34% in 2026 with retaliation (derived from growth rate projections)
Tax Foundation	20% Universal, 60% China	-1.3%, -1.7% with partial retaliation
The Budget Lab	20% Universal, 60% China	-0.64%; -0.95% with retaliation
The Budget Lab	20% Universal, 60% China, Additional Mexico	-1.15%; -1.43% with retaliation
Fitch	Aggressive US Tariff Scenario	-0.4% to -0.8%; up to -1.1% with retaliation

Tax Foundation review of Tom Lee, “Trump’s Proposed 10 Percent Tariff: Considering the Impact”
Chief Investment Office GWM, “The Economic and Investment Implications of Higher Tariffs”
Warwick J. McKibbin, Megan, and Marcus Nolan, “The International Economic Implications of a Second Trump Presidency”
Peterson Institute for International Economics; Mark Zandi, Brendan LaCerda, and Justin Begley, “The Macroeconomic Fallout of Trump’s Tariff Proposals”
Aiste Bijune and Lan Ha, “US 2024 Election: Implications for the Global Economy”
International Monetary Fund, “World Economic Outlook, October 2024: A Rocky Recovery”
Paul Ashworth, “Trump’s New Tariffs Would Accelerate Global Fracturing”
RBC Wealth Management, “The economic impacts of non-economic policies”
The Budget Lab, "Fiscal, Macroeconomic, and Price Estimates of Tariffs Under Both Non-Retaliation and Retaliation Scenarios"
Lydia Boussour and Gregory Daco, “2025 and beyond trade policy”
Fitch Ratings, “US-Led Tariff Hikes Under Renewed Trade War Would Reduce US/World Output.”

That appears to be only the effect of the tariff policy, not the expected market changes based on Trumps economic plan as a whole (or particularly compared to what Harris was offering).