Perspective Matters
Last week, I suggested we take a "wait and see" approach to learn which campaign promises the incoming Trump administration might prioritize. Well, what a week it's been. The announcements we've seen have given us plenty to think about, and I want to share my perspective on what this might mean for your investments.
UNDERSTANDING THE CURRENT TRANSITION
Let’s start by remembering what usually happens during this time. Typically, these three months between Election Day and inauguration are pretty structured. The outgoing team wraps up their priorities and shares crucial information (especially on security matters) with the incoming administration. Meanwhile, the incoming team runs extensive background checks on potential cabinet members – we're talking deep FBI investigations to avoid any surprises down the road.
What we're seeing now, though, is remarkably different from previous transitions. To put this in perspective, let's look back at some other notable transition periods. During the Reagan transition in 1980-81, while there was certainly a clear mandate for change, the process itself followed established protocols. Even during the heightened uncertainty of the 2008-09 transition, amid a global financial crisis, both teams maintained traditional cooperation to ensure economic stability.
The current transition is breaking just about every norm in the book. The incoming administration's approach to appointments seems to be more about loyalty than qualifications. It's important to remember that these aren't official appointments yet – that can't happen until after inauguration, and traditionally requires Senate approval. There's some push to bypass this Senate confirmation process, which worries me because our system of checks and balances is there for a reason.
REGULATORY CHANGES AND MARKET IMPLICATIONS
Looking at the proposed appointments, I see a clear pattern emerging. Many of these nominees have been vocal critics of the very agencies they might lead. Add to this the Supreme Court's recent decision to overturn the Chevron Doctrine, and we're looking at what could be a dramatic scaling back of federal oversight in everything from food safety to environmental protection.
What does this mean for your money? In the short term, it might actually boost some stock prices. Companies that spend less on regulatory compliance often see higher profits. But – and this is a big but – markets generally prefer certainty over uncertainty. They don't care much about which party is in power, but they do get nervous when big changes are on the horizon.
UNDERSTANDING MARKET REACTIONS TO REGULATORY CHANGES
Let's talk about how markets typically respond to major regulatory shifts. I've watched this play out several times over my career, and the patterns are fascinating. When Dodd-Frank was implemented after the 2008 financial crisis, we saw immediate negative reactions from financial stocks. However, within a year, many of these same companies had adapted and were performing better than ever. Why? Because markets eventually price in regulatory changes, and businesses find ways to adapt.
Think about what happened when tech companies faced new privacy regulations. Initially, their stocks took a hit as investors worried about compliance costs. But companies that adapted quickly actually gained competitive advantages. The market rewards adaptation and innovation, even in the face of regulatory challenges.
Here's what history tells us about these transitions:
The initial market reaction is often more dramatic than the long-term impact
Sectors facing the biggest changes usually see the most volatility
Companies with strong adaptability often emerge stronger
Market uncertainty tends to peak during the implementation phase, not the announcement phase
HISTORICAL CONTEXT AND FUTURE CONSIDERATIONS
The 1970s give us some valuable lessons about regulatory evolution. I'm old enough to remember when the EPA was first formed. People worried it would destroy industry, but instead, it sparked innovation in clean technologies and actually created new market opportunities. The same happened with workplace safety standards – initial resistance gave way to improved productivity and reduced liability costs.
Then came the 1980s deregulation wave. While it did boost economic growth in many sectors, we also learned important lessons about the need for balanced oversight. The savings and loan crisis, for instance, showed us what can happen when we swing too far in either direction.
But I also understand the frustration with overregulation. Take Washington state's recent adoption of California's rule requiring all new passenger vehicles to be zero-emission by 2035. While the goal is admirable, I completely get why residents are upset. It's examples like these that fuel the push for regulatory reform.
INVESTMENT STRATEGIES IN UNCERTAIN TIMES
Here's where I need to be crystal clear: while all this makes for fascinating political discussion, our focus needs to be on protecting and growing your investments. We are likely to be entering a period of increased volatility, and as always, I believe in starting with appropriate risk management.
Here's what I suggest:
1. Keep Your Powder Dry: Make sure you have enough cash on hand for the next 24 months of expenses. If you want to sleep even better at night, stretch that to 36 months.
2. Think Short-Term for Now: Anyone claiming they know exactly how this will play out is selling something. Let's focus on the next 3-6 months and adjust as we learn more.
3. Stay Diversified: Keep your investments spread across:
Different types of investments (stocks and bonds)
Different parts of the world (U.S. and international)
Different market sizes (large companies and emerging markets)
This approach has historically helped portfolios weather significant regulatory shifts, regardless of which direction they take.
LOOKING AHEAD
I'll be blunt with you – we're entering uncharted territory. The changes we're seeing could reshape how our government agencies work in ways we haven't seen in decades. But this is exactly the kind of situation where having a clear investment strategy and a trusted advisor becomes crucial.
Think of it this way – time and cash are our best tools for managing risk right now. Time lets us ride out market volatility, and cash gives us the security to stay on the sidelines until we have more clarity. These principles apply whether you're a current client or managing investments on your own.
I'm watching these developments closely and will continue sharing my insights through these updates.
Remember, while we can't control what happens in Washington, we can make sure your investment strategy is designed to adapt to whatever comes our way. That's true regardless of where you are in your financial journey.
For Prism clients, you can rest assured that your portfolios are built to handle uncertainty. We've planned for challenging times, even if we couldn't predict exactly what those challenges would look like. I'll continue our regular check-ins and strategy sessions, adjusting your plans as needed based on these developments.
If you're not currently working with a Certified Financial Planner™ professional, this might be a good time to evaluate your investment strategy. Our role as CFP® professionals is to help you navigate uncertainty while staying focused on your long-term financial goals. Are you confident in your portfolio's ability to weather significant regulatory changes? Do you have someone helping you think through the implications of these shifts for your specific financial situation?
At Prism, our approach starts with personalized financial planning and incorporates careful analysis of market conditions, helping each client navigate complex transitions like the one we're facing. If you'd like to discuss your specific situation and concerns, please feel free to schedule a conversation by clicking HERE.
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Neither Prism Planning and Solutions Group nor Insight Advisors provide tax advice, and nothing in this communication should be treated as such. This communication should not be interpreted as a recommendation for a specific investment or tax-
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