A three-step plan to position your portfolio for the U.S. election, a potential recession, the rise of AI, black swan events, climate change and more:
- Hold stocks and bonds in a mix that suits your age and risk tolerance – 70-30 is a good starting point.
- Hold stocks from Canada, the U.S. and markets outside North America – international markets – a default mix could be one-third for each on the stocks side of your portfolio
- Hold stocks from most or all sectors, or make use of index-tracking exchange-traded funds – index ETFs give you the returns of major indexes minus a few crumbs in fees, and they expose you to many of the stocks people are talking about at any given moment.
The investing world is split between those who more or less follow these three steps and those who at least talk about “positioning” portfolios for local or global events. Ignore the positioners, even when they talk a good game. Classic diversification is what makes a portfolio, not guesswork tweaks designed to accommodate trends and events.
The coming U.S. election is the latest event to spark talk about how to adjust a portfolio. A neat dismissal of this kind of twiddling can be found in a recent edition of an investing newsletter called Thoughts From the Frontline. “Here is a little secret: Markets have generally gone up under Republican presidents and markets have generally gone up under Democratic presidents, and the reason for that is … wait for it … markets just generally go up,” wrote the author, John Mauldin. “Put differently, the profit motive doesn’t take a nap when a new president is inaugurated, and American companies have a remarkable way of staying laser-focused on maximizing profits no matter who is in the Oval Office.”
Diversification isn’t an exact science – a tiny amount of crypto is starting to edge its way into professionally managed portfolios, and some pros like to include exposure to real estate, commodities, infrastructure and other alternative assets. Retail investors may want to dabble in these assets as well, but the portfolio for all seasons is really just about the three points outlined above.
Once you’ve got the mix right, adjust only for changes in your personal situation, your age or your tolerance for the risk of losing money. No other positioning is required.