How to Invest During a Presidency With a Deep Devotion to Profits

“The chief business of the American people is business.” That declaration by Calvin Coolidge has been shortened and simplified since that Republican president uttered it before an assembly of newspaper editors a century ago.

But the notion that the business of America is business was on conspicuous display at President Trump’s inauguration. It may be the chief reason for heightened optimism about the stock and bond markets.

Plenty of worried readers have been writing in — asking how, in broad strokes, they ought to deploy their money during the second Trump presidency. It is both a pressing problem and an eternal quandary, one that, in investing jargon, is labeled asset allocation. How do you divide up your money to get the most reward for the least risk? The new administration is presenting investors with outsize rewards and monumental risks right from the start.

Certainly, the Trump inauguration is conveying conflicting messages and meanings. In his long formal inauguration speech in the Capitol Rotunda and then in a stream of well-publicized remarks as well as a flurry of executive orders, Mr. Trump has touched on many of his favorite and most contentious subjects.

They include declarations of two states of emergency, enabling the deployment of the military for mass deportations and bolstering presidential authority to promote fossil fuels. President Trump also promised to impose tariffs on China, Mexico, Canada and Europe; seize the Panama Canal; buy Greenland from Denmark; place an American flag on Mars; and, generally, fulfill America’s “manifest destiny.”

Depending on your personal politics, these initiatives may seem profoundly unsettling — or refreshingly disruptive. But in Mr. Trump’s meandering pronouncements, one thread was clear and consistent.

By giving pride of place at his inauguration to a coterie of rich tech executives — Elon Musk of Tesla, Jeff Bezos of Amazon, Mark Zuckerberg of Meta, Sundar Pichai of Google and Tim Cook of Apple stood in front of cabinet nominees like Robert F. Kennedy Jr. — the Trump team emphasized its relentless commitment to the pursuit of profit. Big business has an inside track in the second Trump presidency, and those with a stake in those businesses have reason to rejoice.

I’m not jumping on any bandwagon. Based mainly on the fact that the United States has survived for nearly 250 years and that its economy has surmounted countless setbacks and managed to prosper, my own view is that it still makes sense for individual investors to rely on the classic principles that have worked for decades.

I’ve been sketching the outlines of what academic finance tells us about investing over many years, but at a fraught moment like this, it’s worth a straightforward review. So here are core elements of what I think everyone needs to know about asset allocation.

Diversify, Don’t Gamble

Great fortunes have already been made since the Trump victory. One beneficiary is Mr. Trump’s new sidekick and well-heeled supporter, Mr. Musk, whose Tesla shares have risen more than 60 percent from Election Day through Thursday. Another is the Trump family itself, whose new cryptocurrency has quickly become one of the world’s most valuable speculative digital ventures.

If you have piggybacked on these bonanzas and reaped magnificent gains, good for you. In a small sense, I suppose I have, too. I don’t own cryptocurrency directly, or the shares of any individual company’s stocks or bonds, but I’ve got stakes through low-cost global stock and bond index funds. Even cryptocurrency is included in my holdings, indirectly, through companies like MicroStrategy and Coinbase.

But I’m not making short-term bets of any kind and, as an investor, I’m not trying to figure out what will rise or fall over the next four years. Instead, I’ve placed permanent wagers on the overall markets through index funds, which don’t require me to pick individual stocks or bonds or monitor their performance closely. This is the approach I’d take under any president.

Most academic studies have found that simply remaining in the markets over the long haul has been an excellent approach — one that few professional traders beat.

Finding a Balance

There’s always risk in investing. But in the sense used by Benjamin Graham, the Columbia finance professor who was Warren Buffett’s mentor, investing is a long-term and serious endeavor. It’s as different from speculation as value is from price. In investing, you are not making quick bets. Instead, you are expecting that over many years, the growing, underlying value of your holdings will ultimately be reflected in their ephemeral market prices.

This underlying value is supposed to protect you against loss, though over short periods, when markets plunge, even solid businesses fall sharply in price. Squaring that circle — obtaining the greatest reward for the least amount of risk you are able to bear — is what diversified asset allocation aims to accomplish.

Professor Graham and his student, Mr. Buffett, assessed individual securities with great care and with a laborious and well-documented method that depended ultimately on wise judgment. Most people have neither the talent, background nor time for that, which is why both of these eminent investors recommend low-cost index funds for the vast majority of us.

People with short horizons — say, older retirees or a parent putting away money that will be needed for a child’s education in the next few years — are especially vulnerable to the consequences of serious losses.

For the truly risk averse, stocks may be unwise. Safer, fixed-income securities may be well-suited for people who won’t have time to recover from major setbacks.

Short-term Treasuries — held as individual securities, through money-market funds or in short duration bond funds — won’t generate hefty returns but won’t inflict significant losses, either. Sometimes, protecting your money is far more important than getting a great return.

That said, stocks have outperformed bonds over long periods, and for those with the time and ability to ride out losses, broad holdings of stock in global market index funds may be the investment of choice. If you’re just starting your career, you may want to put all the money you are stashing away for retirement in broad stock funds, funneling some of it into bonds only later, when your career trajectory is shorter.

These alternatives — a risk-averse person holding only short-term Treasuries and a risk taker with plenty of time going 100 percent into stock — represent two asset allocation extremes. For those seeking strong returns along with a degree of stability, something in between may be better.

How much in stock and how much in bonds? There’s no scientific solution to this question. The conventional answer is 60 percent stocks and 40 percent bonds for a typical investor — but none of us are entirely typical, and what we think we can handle may differ from what we can actually accept in a big market decline.

William J. Bernstein, author of “The Four Pillars of Investing,” reminded me of this in a phone conversation. “Estimating your risk tolerance in advance is like experiencing a crash in a simulator. You’re not going to respond the same way in a real airplane.” Some people may be able to shrug‌ off a big loss, knowing that the stock market has usually recovered in ‌just ‌a few years‌ and gone on to greater heights‌. Others may realize that they were ‌far ‌more aggressive ‌with their investments ‌than they had understood. “If ‌you realize that‌ that happens, by all means, change your allocation to one that lets you sleep at night‌,” he said.

History shows that under most presidents — including Mr. Trump, in his first term — the U.S. stock market has risen. This time could be different, yet the greater risk may be staying aloof and missing out on economic growth and corporate profits.

Your political views needn’t determine your financial approach. Instead, find an all-weather allocation that you can live with and try to stick it out.