Staying invested after the US Elections

By Navin Sregantan

If you’ve only got a minute:

• Making tactical adjustments to your portfolio to gain more exposure to “Trump Trades” can be beneficial, but these should only take up a small proportion of your total portfolio.
• Your portfolio should be aligned with your investment goals, risk appetite and time horizon, with asset classes and sectors appropriately weighted.
• A sound investment strategy and the discipline to adhere to a well-defined plan are key drivers of portfolio returns over the long run.

In a remarkable turnaround, Donald Trump is returning to the White House after winning both the electoral college and popular vote in November 2024’s US Presidential Elections.

It’s quite the improbable comeback given that Trump is the only president in US history to have been impeached twice by the House of Representatives. This also suggests that Americans are willing to brush aside other concerns surrounding Trump to focus on pressing economic issues.

To top that off, the Republican Party completed the “Red Sweep” by having a majority in both the House of Representatives and the US Senate, which puts them in a strong position to reshape policies for the years to come.

Unsurprisingly, the ever-forward-looking stock and bond markets reacted quickly to a potential Republican sweep once Trump took an early lead in the polls and the party secured a Senate majority.

Interest in the beneficiaries of a Trump presidency or what the market calls “Trump Trades” jumped with investors buying stocks, US dollars and even Bitcoin while selling bonds.

In other words, investors are betting on the expectation of a pro-business environment on the back of deregulation and tax cuts, among others.

While this may appear reactionary, it’s not out of the ordinary, especially after major political events like the US Elections.

But if you are investing with a long-term lens, is piling into the winners of a Trump Presidency an approach to take?

Trump 2.0

According to DBS Chief Investment Office (DBS CIO), a Republican sweep is likely to create short-term opportunities for tax-sensitive sectors through possible corporate tax rate cuts from 21% to 15% for certain companies (i.e. Those that make their products in the US), deregulation across various industries, and increased tariffs on imports, particularly from China.

Sectors like energy, transportation, and financial services stand to benefit from lower taxes and reduced regulatory burdens.

Additional tariffs could boost US manufacturing especially in pharmaceuticals, semiconductors, and renewable energy through competitive advantages and tax cuts. Technology, which has been among the best performing sectors in the last decade, is likely to continue its upward trajectory.

However, some potential benefits of a Trump presidency might be temporary. Retaliatory measures from other countries (e.g. China) in response to US tariffs could increase costs and disrupt production for businesses with global supply chains.

At the same time, it's crucial to remember that even with Republican control of the House, not all campaign promises may be fulfilled. This is because the political, economic, and global landscape can change, making implementation difficult.

Read more: Taking the emotions out of investing

Thinking long-term

While investors may seek opportunities arising from political change, company performance ultimately hinges more on effective management than on the prevailing political climate.

Making tactical adjustments to your portfolio to gain more exposure to “Trump Trades” can be beneficial, but these should only take up a small proportion of your total portfolio.

Afterall, your investment portfolio should be designed to help you meet your mid- and long-term needs for money like your children’s education fund and a comfortable retirement.

To meet your needs, investments should be aligned with your financial situation, investment goals, risk appetite and time horizon, with asset classes and sectors appropriately weighted.

Instead of focusing on short-term volatility and fleeting opportunities, prioritise long-term secular trends offering sustainable growth, irrespective of political developments.

According to DBS CIO, examples of this include but are not limited to artificial intelligence, cloud computing, and cybersecurity, which have made the technology sector a key driver of economic growth, regardless of which party holds power.

A long-term investment strategy shouldn't rely on chasing short-term gains driven by market trends or politics as such an approach risks overlooking other significant growth opportunities.

Read more: Investing along the economic cycle

Staying invested

For retail investors, consistently timing the market to "buy low, sell high" is difficult, and even professional investors sometimes misjudge the market.

With that in mind, a principle to remember is the importance of staying invested. Instead of trying to “time the market” and dealing with the unpredictability of market fluctuations, think long-term and spend “time in the market” by employing a dollar-cost averaging (DCA) strategy.

If you’re always trying to “time the market”, there is a good chance that you’ll miss the best trading days.

Based on the returns of the S&P 500, which serves as the benchmark for US stock market performance, between 2004 and 2023, 7 of the 10 best days occurred within 2 weeks of the 10 worst trading days.

With DBS Invest-Saver, you can employ DCA by investing a pre-determined sum into exchange-traded funds (ETFs), unit trusts, or robo-advisors like DBS digiPortfolio on a monthly basis. Doing so offers diversification across multiple sectors and/or asset classes.

You can also consider adopting a hybrid approach by using DCA to build your base slowly and steadily, while adding more funds into the investment in an ad-hoc manner as and when market opportunities arise.

Ultimately, sound investment strategies and the discipline to adhere to a well-defined plan are key drivers of portfolio returns over the long run.

Read more: Is DCA or lump-sum investing better for you?

In summary

Although tactical investments in sectors benefiting from a Trump Presidency might be considered, these should only take up a small proportion of your total portfolio.

A long-term perspective, focusing on diversification and consistent investment, is far more crucial.

For long-term investors (with a time horizon of 10 years or more), remember that success requires patience, discipline, and time.

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Sources:

DBS Treasures, “Asset Allocation | US Presidential Election: Macro & Cross-Assets Implications” (24 Oct 2024) Accessed 10 Nov 2024.

DBS Treasures, “Trump win and the global macro narrative” (6 Nov 2024) Accessed 10 Nov 2024.

DBS Treasures, “Implications of Trump 2.0” (8 Nov 2024) Accessed 10 Nov 2024.

Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

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