The Government and Diversification

The DOW has been hitting record highs lately. Why? Because of the recent tax reductions and regulatory changes that have largely benefited these big companies.

These benefits are already reflected in their stock prices, though, so there are no bargains to find. Big US companies are selling for 3–4 times other market segments around the world. It may be tempting to buy these companies based on their recent run, but that would be chasing yesterday’s winners.

Not only that, but look at people running for office. Many of them are talking about increased regulations which could dramatically impact these large companies: closing offshore tax havens, eliminating the step up in basis with capital gains, and getting rid of charitable tax benefits.

Regulations can pop up in other areas, too. The Wall Street Journal did a study on search engines and they found search engines overly benefit big US companies. If that comes under more scrutiny, it could negatively affect them.

Other countries around the world are also talking about reducing their tax rates to make them more competitive—putting pressure on their US counterparts. Tariffs could drive business up in other countries.

We’re coming up on an election year. Governments around the world go through changes during election years, and we’re no different. Don’t let the news or media pull you off course, if you’re already well diversified.

You don’t need to make changes to an already-diversified portfolio in anticipation of government regulations. Any known regulations are already reflected in prices, and the rest is just speculation. But know that even the strong run Big US companies is currently on could easily come to an end.

If you don’t know how to measure your diversification, we can show you. But don’t wait—most people find out they’re not diversified when it’s too late. Make sure you own all the academic asset categories in their proper amounts. They have all been great diversifies historically.

Stay diversified.

Written by Paul Winkler

*Advisory services offered through Paul Winkler, Inc. (‘PWI’), a Registered Investment Advisor. PWI does not provide tax or legal advice: Please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase or sale of any securities. Information we provide on our website, and in our publications and social media, does not constitute a solicitation or offer to sell securities or investment advisory services, or a solicitation to buy or an offer to sell a security to any person in any jurisdiction where such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.