Donald Trump is ten days into his Presidency and has already caused increased uncertainty for investors. Although many people were caught off-guard with the Executive Orders that withdrew the US from the TPP discussions, as well as his commitment to building a wall with Mexico, the restrictions on individuals arriving from specific countries in the Middle East and Africa perhaps caused the greatest shock.
Looking ahead, it seems likely that there will be further surprises. This could lead to even greater uncertainty and more volatility in share prices during the course of 2017 and beyond. Here’s how Foolish investors can not only survive in the coming months, but also prosper from Donald Trump’s Presidency.
Volatility means opportunity
The historical performance of the stock market may not be perfect in predicting its future outlook, but it does provide a guide as to when is the right time to buy. While many investors wait until the stock market has settled down and forecasts are improving, past performance of shares shows that the best times to buy are normally when the future is at its bleakest. That’s because valuations will normally have fallen so as to price in a worsening economic performance. This provides a wide margin of safety as well as significant upside.
During Donald Trump’s Presidency, volatility could rise as his policies are likely to represent a major change from the status quo. While stock markets are currently at or near record highs, increased uncertainty may lead to a more cautious attitude among investors. This may cause share prices to come under pressure and create buying opportunities for long-term investors.
Certainly, buying during periods of higher volatility may generate paper losses in the short term. However, by thinking long term and buying the best companies it may be possible to generate higher returns due to Trump’s Presidency.
Focus on income
While in the long run buying shares which offer a wide margin of safety may be a sound move, in the short term generating an income may prove crucial. That’s partly because income from shares could be used to reinvest during what may prove to be an attractive year for investment. In other words, cash from dividends can be used to take advantage of volatile share prices during Trump’s Presidency.
However, dividends may matter more this year due to the higher rates of inflation which could be around the corner. Trump has stated that he intends to raise spending on infrastructure and also to reduce taxes. This could cause inflation to rise in the US, which may then be exported across the globe. As such, generating a relatively high yield from shares could become even more important this year, as the value of dividends once inflation has been deducted may be much smaller than in 2016.
Alongside taking advantage of potentially high volatility in the coming months, buying higher yielding shares could be a sound means of benefitting from a Trump Presidency. While 2017 may be a tough year for investors, it could also prove to be a prosperous one, too.