Charles Ellis, known as the dean of American investment advisors, has words of wisdom for American investors: Prepare for a riskier world.
The short-term volatility brought on by the surprise news of Donald Trump's victory has already faded. Overnight, stock futures dropped sharply on the surprise win, but the S&P 500, Dow Jones Industrial Average and the NASDAQ were trading around the flat line by mid-morning.
The bigger questions are whether the volatility will return, and in the long-term, how should individual investors respond? After news of the election broke, Ellis said, a friend came to him in tears. "She was scared," he said. "Anybody who is not scared is crazy."
"In this fragile world, electing a leader who is not committed to the international process and working out answers for the common good is dangerous," he said. "Take the Cuban Missile Crisis. Take Jack Kennedy out, and put Donald Trump in."
A former board member of Vanguard, the world's largest mutual fund company; the Yale Endowment and a longtime advisor to institutional investors, Ellis is known for sage advice that balances economics and investing. He said investors might be tempted to panic and sell — or be opportunistic and buy. The right answer is to slow down, Ellis said.
He suggested investors who need to should shift more money into cash so that they have six months to one year's supply. In the short term, "if you were to ask me, Will stocks be 20 percent up this year or 20 percent down, I'd put all my money on down 20 percent."
A recent analysis by Chicago-based Calamos Investments found that from 1991 to 2015, preelection years — the year prior to a presidential election — historically have outperformed the other years of a presidential term, and election years have been historically weaker. Over the last 25 years, on average, there has been a -19 percent drop in market performance from preelection years to election years.
Yet, Ellis said, the market is still a good bet to be higher in the long term, longer than five years.
"Try to take a long-term perspective," he said. "Count to 100; try to envision yourself five, 10, 20 years from now. Will you look back and think the right decision was to sell everything? Probably not."
He has other advice for investors: