A strategist warns against making the mistake of thinking investing during the Trump years is easy.
What investors anticipate will occur in the future influences market movements. If you are knowledgeable about the incoming administration, the state of artificial intelligence, or the historical economic impact of tariffs, you may believe you have a good understanding of what will happen in the next four years.
If you plan on calibrating your portfolio based on your assumptions, you may be falling into a common investor trap, according to Ryan Detrick, chief market strategist at the Carson Group. The truth is, it's often challenging to accurately predict which companies will benefit from government policy proposals.
"When President Biden assumed office, it was widely believed that he would excel in promoting green energy while struggling with fossil fuels. However, energy has emerged as one of the top-performing sectors under his leadership."
Since the beginning of his presidency until Friday's market close, the energy sector has experienced a 133% increase in stock prices in the S&P 500, trailing only the 189% return of technology companies.
During President Donald Trump's first term, energy stocks remained unchanged, despite the expectation that a "drill, baby, drill" president would benefit the oil industry.
Detrick says that trying to pick winners is "tricky for a lot of investors who think this is easy."
Picking future winners is 'a difficult game to play'
Detrick advises against relying on policymakers' plans to gather market information, stating that it is not worth getting mixed up in policy.
Instead of suggesting following the economy, he recommends paying attention to the Fed's actions, inflation trends, and interest rates. These factors will have a significant impact on investors.
In the long run, stocks are not significantly influenced by the actions of the President or Congress. Instead, they are driven by fundamental factors, such as corporate earnings and economic conditions.
To achieve long-term success in investing, it's crucial to focus on building compounding returns over time. Although you may experience short-term gains by making a smart move, a diversified, broad-market strategy is likely to yield better results in the long run.
In the past decade, only 29% of active mutual fund and exchange traded fund managers were able to outperform their benchmark index and survive, according to Morningstar.
Detrick advises against trying to predict long-term winners and losers in the market under the new regime, as it is a challenging game to play. While there may be short-term excitement or worry about potential policy changes, the big picture is that it is difficult to anticipate the outcomes.
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