Those of us old enough to remember can point to August 12, 1982 as the exact day that the great Reagan Bull Market began, but in truth the foundation was laid in the spring of 1980 when Ronald Reagan pushed through the reduction of regulations and the large tax cuts that got investors, risk takers, and business people stirred with the visions of profits and opportunity. That economic boom lasted for almost twenty years taking the stock market from 777 to 11722. That is a 15x gain over 18 years. We have personal computers, the internet, and many retail chains today found birth during that time that came from the great awaking of the economy due to Reagan. Do your calculating and think about how much new wealth was created during that time and you will know why Reagan was so loved.
The deal here is rather simple we are going from a redistributionist economy to a pro-growth economy. Wealth redistribution to wealth creation. The political economy of Obama double dealing with large corporations is coming to an end and they will have to get busy growing their business if they are to have growing profits, instead of depending on government largess. The last eight years they have only to buy off politicians who via regulations and targeted taxes keep competition at bay and grow their market share in a static market instead of competing in an growing market for share. The federal reserve which has participated in this game by keeping rates low that allowed the use of static profits to do huge buyback of stocks and increase dividends without having to do much other than exist is going to the sidelines soon. Increasing interest rates will mean a growing economy that absorbs those rate increases in growth. The great interest rate sale of the last eight years is coming to an end and the rich and elite who profited from this arrangement will soon have to compete for profits. We find this exciting and frankly challenging.
The last eight years we have opined that just keeping your assets in the mega cap stocks via the S&P 500 would do you well. Investing with the rich and elite made for good gains in wealth and lots of income too. Now with a changing economic environment where competition will become the norm one can no longer just invest without considering the risk and opportunities. Risk was not a real concern during Obama's regime if you invested wisely.
So what is an investor to do going forward into the Trump economy? First off we suggest continuing to keep a large portion of your assets in the S&P 500 as those big companies can compete and thrive in a growing economy. Next up consider taking some of your assets and puting them in smaller companies and those with significant growth ahead. We find Vanguard Primecap Fund and Vanguard Capital Opportunity Fund two cheap and well positioned funds for your consideration. We will be on watch for other funds that offer opportunties, but moving some of your assets to a total market index is a smart move now. Both of these funds mentioned are closed currently to new investors, but keep them on your radar as they could open up soon. Do not get caught up in trying to pick individual stocks and stay away from bond funds entirely since bond funds will get hit with rising interest rates.
Hopefully the new Trump economy is the young generation's chance to see what Americans do when opportunity and wealth creation becomes the accepted norm. This new normal is not the old new normal and those who invest smartly, use and invest in their talents and skills, and want to achieve will get a chance again and the opportunity to soar. We are thrilled to be here once more in our life even if it has been over three decades since the first time we witnessed American Exceptionism and American ingenuity take the world to heights never seen before. Making America grow again is a good thing, a very good thing.
