My Trump money lesson

Donald Trump made a monkey of the media.

Not only didn’t the world’s media believe he could win the US presidential election, but it also ran stories promising global share market meltdowns if he did.

This mattered to people here as around a third of KiwiSaver money is invested in shares listed on overseas sharemarkets.

So pervasive was the preelection Trump-as-economic-antiChrist coverage, that a lot of people, myself included, wondered about selling all my investments and putting everything into cash.

I didn’t, though I did drag my feet on reinvesting some money in case a Trump victory led to markets crashing.

In my job, I get to hear a lot of people’s forecasts for the future. They are often wrong. That’s not surprising. They are humans.

To be human is to be wishful, and wishful thinking leads us to be wrong about the way the world really works.

GOLDEN RULES

People aren’t good at markettiming Focus on what you can control Set your long-termstrategy

Humans dwell on evidence that supports their theories, and ignore evidence that doesn’t.

Maddeningly, when individual humans are right, often other humans fail to recognise it for years and years.

And, if humans suffer painful losses, it can lead them to worse mistakes in the future. Many burnt in the 1987 sharemarket crash swore off shares forever and missed a massive bull market.

I long ago came to believe I will always be rubbish at timing markets.

The academic literature on the subject reveals I’m not alone. Investors consistently underperform the market through their market-timing decisions.

Hence in KiwiSaver, and longterm retirement savings, I am content to drip feed money into shares and bonds every week.

When markets are rising, I buy shares. When they are falling, I buy shares more cheaply.

Over the long run, shares should return more than bonds, which should return more than cash, so it should pay me to invest in them, and not undermine the strategy by trying to time the market.

‘‘Maddeningly, when individual humans are right, often other humans fail to recognise it for years and years.’’

I try to focus on the things I can control, like how much I save, instead of the things I can’t, like the direction the markets will take after a US election result.

It should be the same with your mortgage.

No-one can control what interest rates will be in three years’ time, but Homeowners can control how much they pay off their mortgage now, reducing the impact of whatever future interest rates are. Back to Trump. I have a visceral distaste for men of his ilk, just as I have for political dynasties like the one the Clintons were hoping to found.

Trump reminds me of the crass, self-aggrandising New Zealand property experts who went bankrupt or saw their businesses collapse in the 2000s during a giant house price boom.

I did believe Trump could win, hence my reinvestment footdragging. Clever me.

But I also believed a Trump win would create market carnage. Stupid Me.

Trump gave me another lesson in why market-timing is a dumb strategy for me.