Learn why investors should take a long-term perspective and not react to events like the 2016 election


Vanguard Global Chief Economist Joe Davis, Vanguard Senior Investment Strategist Jonathan Lemco, and Pzena Investment Management Portfolio Manager Allison Fisch caution investors to take a long-term perspective and not react to events like the 2016 election.

TRANSCRIPT

Jon Cleborne: Well, amazingly enough we’re about out of time here. So I’d maybe ask if you guys, given all that we’ve covered, we’ve covered a lot of ground here, closing thoughts?

Allison Fisch: All right, so my closing thought I guess on this conversation would be that everyone should remain calm. The world hasn’t really changed overnight in terms of the election. And in terms of emerging markets, we think it’s a great opportunity. But similarly to other markets around the world, the way to be invested at this moment is to really be picking your spots because there are portions of the market that are overvalued, just as there are portions that are very, very cheap.

Joe Davis: Yes, I mean I haven’t altered mine personally. Or I would suggest to investors not materially alter their asset allocation either. I mean, this too shall pass. It’s not—We’ve had a lot of adventures over the past four or five years. If you pull up the measure of the equity market, and then every dip you can see something there was addressed is a concern for something. I’m not here to be Pollyanna, I’m just saying, it’s important not to overreact, and I look at my portfolio and I have comfort that I have, I own the world. It’s globally diversified. And I mean for the record I have both, we both have passive investments and actively managed investments, full disclosure. And I’m an investor in your fund as well, right, because I believe there’s active managers regardless of what the macro economy is doing, can identify pockets of value. And I’m willing to hold that to benefit from that skill longer-term. So I, yes, so even though I’m asked for perspective on events such as these, and that’s important. And I may ratchet my expectations up or down, I’m not fundamentally changing how I stick to my plan.

Jonathan Lemco: And I agree with my colleagues. The purpose of our talk today of course was to talk in part about emerging markets and in part about the U.S. election, and to the extent that the election matters for EM, and it does, over the long run. But keeping perspective, ‘that equally important, if not more so, would be the actions of the United States Federal Reserve. If they raise basis, if they surprise us and do more than 25 basis points, say, in December, I don’t think they will, but if they did, historically that would be a negative for EM. If on the other hand they just raised 25 basis points and they sort of send signals they might, I think that will just be a second blip. And it shouldn’t be a surprise at all. That, if anything, is just as important if not more so than the U.S. election. The fact that China is maybe stabilizing and its impact on the rest of EM is just as important as the election and the Fed. The fact that we’re seeing lessening or market friendly policies in LATAM, similarly is just as important. The point is there’s so many inputs into the mix that you’ve got to keep these events in perspective. There will always be shocks of one kind or another. It’s another reason why you want as diversified a portfolio as possible. And a long-term perspective.

Important information

All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.

Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of currency fluctuations. These risks are especially high in emerging markets.

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