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How the Election Will Affect the Stock Market

October 13, 2016

Everything affects the market – on a short term basis. That is why there are wide fluctuations, sometimes within a single day. However, when investing for long term financial security, the daily changes are not relevant. What matters are the long term trends – of stock values and dividends.

So my question to you is “where do you think the stock market will be in 10 years?” A second question is “do you think dividends in dollars paid out will be higher or lower in 10 years?” Here is a technique to use for your evaluation:

Get a piece of any type of graph paper. Mark a spot in the left most column midway between the top and bottom of the page. Next set off to the right 10 groups of columns for the rest of the page with each group representing a year – so you have 10 years represented. Now start with your mark and draw a line across the page of how you feel the S&P 500 Index will perform over that ten year period. Is it straight, upward or down?

Repeat the process for dividend payments. Is it straight, upward or down?

These are your guesses, but they indicate how you feel the stock market and dividend payments will trend. No one knows, but your feelings are as good as anyone else’s and should make you at least think about how you can assign your investments to take advantage of, or ward off the negative effects, of what you believe the long term trend will be.

If your trend line is up it indicates you believe the stock market and/or dividends will increase over the next ten years. This means you should consider allocating part of your investments to stocks. If the trend line is down you should not add to your stock holdings, and should consider selling either what you have, or reducing your allocation to stocks. You might not want to get out of stocks altogether because you could be wrong. The downward trend line would indicate that you think stocks are overpriced and/or that the dividend payments will drop.

You may have no opinion and not know what to do. That’s OK. Do not invest in the stock market, but I suggest you make a serious effort to learn about it.

How you feel should be integrated into a comprehensive plan and this includes a thorough asset allocation integrated with all your accounts. This includes individual accounts of each spouse, if you are married, bank accounts, annuities, retirement accounts and 401k or 403b accounts managed through your employer and other investment assets.

I am not telling you how to invest. I am suggesting a method you can use that can help you decide for yourself.

To get back to my original question, if you are a long term investor I do not believe it matters how the election will affect the stock market, if at all.

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