Will the Trump US election win change your portfolio?

America has a new President following the Donald Trump US election win last month and the President-elect has announced a host of plans already. A vaccine sceptic as health secretary. A former Guantanamo prison guard as defence secretary. A justice secretary once investigated for sex trafficking. America’s incoming political leadership will offer plenty of entertainment at least. But, at a time when much of your money is invested in American companies and American interests, is it time to think again?

Short term gain…

Investment markets can tell you a few things.

After all, they’re a bellwether for what clever people think may or may not work. It was clear what international investors thought of Liz Truss (reminder: UK government bond yields hit a 14 year high … not good). Conversely, stock markets tended to rise when governments got their Covid response right.

What does this vast, global marketplace expect from America?

In the short term, people were glad there was no recount, no controversy, no attempted coup. And, because markets love certainty, US stock markets hit record highs.

Donald Trump’s talk of deregulation – removing the post financial crisis shackles from banks – was particularly welcome: a basket of American financial companies rose 7% in just two days!

Long term pain?

But, as you know, saving and investing is a long-term business.

The yield on a 10-year bond is an interesting thing. It goes up, as we saw with Truss, when investors want to be paid more for the risk of leading to a government. “What must I be paid every year to compensate not getting my initial investment back?” they ask.

A month ago, according to this chart from FT.com, a US government 10-year bond would have paid you 4.07%. Now, it’s paying you 4.44%. You don’t need me to tell you the perceived risk of not getting your money back is up by about 10%.

Source: FT.com, 15 November 2024

There may be disruption ahead

The incoming government’s desire to slash regulation may well be good for growth. Who amongst us has never bemoaned form filling and impenetrable bureaucracy? Moreover, Elon Musk and his new department may well weed out some (but surely not all) of the $2 trillion they claim is wasted through state inefficiency. More AI may help, as president-elect Trump has promised.

But it’s hard to see tariffs of around 60% on China and up to 20% on erstwhile friends, like us here in Britain, promoting economic growth. History says protectionism tends to inhibit growth and promote inflation. The Bank of England has a useful primer on the subject, if you’re interested.

Moreover, from an economic perspective, mass deportations could also dent growth and drive prices upwards. About half of American farm workers are undocumented migrants, most having lived in the country for ten plus years. How much might it cost the state to deport such individuals? Are businesses compensated? What of food prices?

If it all works, and the American economy booms, we’ll have much a stronger dollar and frayed economic links between the US and China. There may be disruption ahead, indeed!

But what about my investments?

There’s a good case for waiting and seeing.

Let’s say you have 20% of your money in American companies – from shares to corporate bonds. Some of you will have more, some less.

Over time American investments have delivered around 9% a year, according to the chart below (borrowed from fellow advocates of evidence-based investing, Dimensional Fund Advisers).

But it’s not alone in offering inflation-busting returns. UK prices rose an average of 2.9% a year in that period. All but five major, developed markets did better than that.

So, what you really want is someone looking at this sort of evidence, and gently tilting your money to areas (like smaller companies or emerging markets) with a very long track record of giving you that inflation-beating return.

And that, rather neatly, is how we invest your money.

So, whether you’re optimistic, worried, or even agnostic, the evidence suggests your money is very likely to be okay.

If you’d like to talk with one of our experts about the fortunes for your money, please get in touch on 020 7467 2700 and hello@firstwealth.co.uk.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.