From executive actions to yield curves, use the White House to your benefit
There’s a lot of talk around President Donald J. Trump just about every day. Across the political spectrum, people have varying opinions about the Trump administration. No matter your political affiliation, however, there’s one thing we all care about: money.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
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Here are two major ways this White House is affecting your bottom dollar.
Interest rates, bonds and the way forward
Just by getting elected, President Trump has done what the Federal Reserve has been trying to do for years with quantitative easing: steepen the yield curve.
When the yield curve steepens, it makes banks more willing to lend money. Those loans are another direct injection of money into the real economy.
That potential injection, mixed with the promises of deregulation and more “pro-business” policy, should be an indication that there will, in turn, be less quantitative easing.
But therein lies the rub – every point that interest rates rise is another jump in the billions of dollars the U.S. will have to pay back in interest. Because even 1% is a lot when it’s 1% of $20 trillion. With these latest moves, though, the Fed has little choice but to inch rates higher 1) because they can and 2) the Fed know it needs to raise rates now so there is somewhere to go if cuts need to be made during the next recession.
Any way forward for bonds will be tough because negative rates have crowded investors into bond types with creeping correlations. Even keeping the status quo would still leave everyone dissatisfied. This path is the one of increasing inflation and yields, and is therefore the most painful for bond investors.
But Trump’s proposed path could also be the way toward higher interest rates for savers and retirement investors, toward potential job growth in rural and corporate America, and possibly inflation without succumbing to stagflation.
Don’t let executive actions be just for Washington
Executive actions are directives presidents gives to the federal government and related agencies regarding politics and policy. Similarly, make sure to direct your financial future by emphasizing safety, security and control in your portfolio.
Aim for safety by:
- Enforcing boundaries between investments: Don’t let bonds with creeping correlations to stocks hold your portfolio back. Empower your investments with a healthy dose of true diversifiers, investment strategies that historically lowered risk and increased returns in declining markets.
- Stopping the unnecessary chase of diversification for diversification’s sake: Ensure your portfolio has a blend of passive and active investments—stock, bond and alternative investments—to be well positioned in all market conditions.
Amp up security by:
- Rebalancing: Taking a moment once a year to reinvest your earnings from high performing assets into underperforming ones balances risk in your portfolio. (Rebalance Definition)
- Looking for quality: Security is often related to quality. Most people know to ask about the investment strategy and track record. Few go the extra step to find out if the money manager invests in his own strategy.
Stay in control by:
- Keeping control over emotions: Both fear and greed rob you of returns. Sticking to a long-term plan and staying out of the fray of day-to-day market movements can help investors do what they instinctively know is right – buy low and sell high.
- Finding the right partner: Whether that be a robo-advisor, a flesh-and-blood financial advisor or a trusted money manager, the average investor would do well to have an expert help them craft a financial plan.
Make the Trump effect work for you: it’s time to make your investing life great again.
Article by Longboard Funds