President Trump at April’s “liberation day” tariff announcement at the White House, which plunged markets into turmoil. – AFP via Getty Images
Beware our “Marie Antoinette” market.
Poor Marie Antoinette. The late French queen is best known for her supposedly callous, clueless, privileged suggestion that if the peasants couldn’t get enough bread, they should eat cake instead.
Actually, she probably never said it. But so often, it’s not what you said — it’s what people think you said that gets you into trouble.
And at the start of a new year, as U.S. investors eagerly take on high levels of risk in their retirement portfolios, it’s worth pointing out: This is a Marie Antoinette market.
Last April, when President Trump’s “liberation day” tariff announcement shook up the stock market, the president himself called American investors “weak” and “stupid” for panicking and bailing out of the market.
Erstwhile MAGA congresswoman Marjorie Taylor Greene called people who were panicking “losers” and “failures.”
And Treasury Secretary Scott Bessent said people thinking about retirement weren’t worried about “day-today fluctuations” in the market — such as, oh, a 4,000-point plunge in the Dow Jones Industrial Average DJIA in a couple of days.
Trump, of course, is worth billions of dollars. Ditto Scott Bessent. Even Taylor Greene is worth about $25 million, mostly from inheritance.
For people who are rich, their comments — or at least their implied advice — is absolutely right. Someone with $25 million, or $1 billion, has no particular reason to worry unduly about daily fluctuations in the stock market, or to panic. Actually, if you’re rich, volatility is your friend, not your enemy: It lets you buy up more stocks on the cheap. Taylor Greene, presumably without any inside information whatsoever, did just that in the days before President Trump suddenly reversed his crayon-based trade-policy plan. Good for her.
These comments, incidentally, aren’t isolated. Who can forget Commerce Secretary Howard Lutnick’s remark that it would be no biggie if they just stopped sending out Social Security checks for a month? Only fraudsters would complain, he said, while honest retirees would just shrug off a month’s delay in their checks. His evidence: His mother-in-law. To put it another way, Lutnick’s evidence — anecdotal, at that — consisted of a woman with a billionaire hedge-fund manager for a son-in-law. If she can cope without a Social Security check for one month, who can’t?
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Like I said, poor Marie Antoinette. These folks are way beyond asking if the boulangeries are out of brioche as well as baguettes. (Oh, and in France before the revolution, the super-rich aristocrats didn’t have to pay much tax either — another parallel with our modern utopia.)
The rest of us need to bear this issue closely in mind this year. The people controlling the commanding heights of the economy and politics are not in the same boat as the rest of us. It’s not a matter of whether or not they are “bad” people or “stupid” (the latter is unlikely, but not impossible). They live in a world where a financial panic is a buying opportunity.
A timely reminder comes in the Corporate and Business Law Journal, where professor Samantha Prince of Penn State Dickinson Law points out all the ways in which volatility is the enemy, not the friend, of the ordinary stock-market investor.
For most people, their 401(k) plan isn’t just a long-term investment account. It is also a potential lifeline, Prince notes — citing, among other issues, the important legal options to take hardship withdrawals without penalties, and to borrow up to 50% of the balance, up to a maximum of $50,000, in the case of emergencies.
When the stock market falls by 20% or 30% or 50%, people don’t just sell because of irrational fear. They also sell because of rational fear: The fear that it could fall further, and not recover in time.
That’s when a “college” fund becomes a “refrigerator college” fund, and a retirement fund becomes an income-support fund for a store greeter.
These things don’t usually happen to people with spare billions.
Millions of ordinary Americans pulled money from their stock and bond funds during the turmoil last April. Surely not all of them were “weak,” “stupid,” “losers” and “failures”?
This is why the late, great investment guru Peter Bernstein said the “center of gravity” of an investment plan should remain the so-called 60/40 portfolio, meaning 60% stocks and 40% bonds. This wasn’t because he was gloomy about stocks, but because he knew that for most people, volatility is the enemy, not the friend.
As there is no rational reason to skip diversification opportunities when they are readily available, the sensible 60/40 benchmark for ordinary investors these days involves world stocks and bonds, and not just those in the U.S. As the Vanguard Total World Stock ETF VT charges just 0.6% in fees a year, and Vanguard Total World Bond ETF BNDW just 0.5%, such diversification is cheap as well as easy.
Last year, for some reason, both of those global funds handily outperformed their U.S.-only equivalents.
