Susan Hume, PhD, associate professor of finance, was recently interviewed by MeTV host, Larry Mendte, on his show, Another Thing. She was joined by TCNJ School of Business alumnus, Kurt Rossi ’01. Dr. Hume notes the importance of reviewing portfolio allocation and watching monthly spending as a key to wealth building. The market gains have changed risk profiles, so reviewing what an individual holds and readjusting to levels held before market runup is important. Dr. Hume recommends keeping some cash for market corrections because market timing is difficult and buying consistently is more important than timing. Investors waiting for the market to decline after the 2016 election lost out because the markets went up. If the market has a big drop, individual investors tend to sell on fear and will not go back into the market when prices are low. Dr. Hume urges investors to avoid this pattern. Confidence in markets matters. Dr. Hume refers to this as “animal spirits,” or human emotion coined by economists Keynes and Akerlof. The Trump agenda has provided some lift in investor confidence and “animal spirits.” The measure of stock price to company earnings is at the high end, but not at the overvalued level of the 2000 tech bubble.
Dr. Hume notes the following as risks for investors:
- Tariff cuts in the United States will benefit, but history suggests that retaliation is possible. When nationalism emerges, the global economy does not grow.
- A foreign military crisis in China, Russia, North Korea, and the Middle East will reduce trade and global growth.
- The need to dial down politics nationally and globally is vital to keeping up business and investor confidence.
- Immigration openness helps countries with aging populations grow. Limiting it does not.