How to invest

The Trump stock market rally has displayed formidable staying power, yet there are reasons to be uneasy.

The potential troubles are not bubbling up from the economy or from the market itself, but from the world of politics. That raises ticklish questions for the millions of people who rely on the stock market to secure their retirement, buy a home or educate their children.

After all, history shows that stocks have provided the best returns of all publicly available asset classes over long periods, and the conventional wisdom is that they will continue to do so, regardless of transitory things like presidential elections or even wars and recessions.

Yet Mr. Trump is making many people nervous. “The risks are rising fast,” Brad McMillan, the chief investment officer at Commonwealth Financial Network in Waltham, Mass., wrote in late January. “Politics remains the focus here, not economics.”

There are plenty of political controversies at the moment. Mr. Trump’s policies on immigration, oil, financial deregulation, Mexico, NATO, Russia, China and Australia have all set off furors. Take your pick. Let’s just assume that you are concerned — and wondering whether your money is safe.

Based on the long history of the stock market, it’s possible to conclude that Mr. Trump’s behavior in office doesn’t matter. This requires a cosmic perspective, however, and assumes that history will be relevant in the future.

For a truly long-term investor, the overall stock market actually hasn’t been all that risky since 1926. But that statement is reasonable only with some very important caveats. You must have held a diversified portfolio, and you must have been willing to absorb enormous short-term paper losses and hold onto your stocks, come what may.

If you had been able to do all of that for at least 15 years, you would have been fine, because for every 15-year period since 1926, the stock market has never declined, said Sebastien Page, head of asset allocation for T. Rowe Price. That’s great if you didn’t need your money for 15-year stretches.

But of course the market has declined — and with devastating impact — in many calendar years within those 15-year periods. In 2008 alone, the Standard & Poor’s 500-stock index dropped 38.5 percent. In 2002, it fell 23.4 percent. And it fell by double digits in the 2001 and 2000 calendar years, too.

That’s why it’s been difficult to remain serene about stocks — and why pure stock holdings have been dangerous for people who have actually needed to use their money. Globally diversified portfolios containing stocks and bonds have made more sense for most people, Mr. Page said.

In 2008, for example, the worst year in recent market history, diversified portfolios with stocks and bonds generally fared better. A portfolio comprising 60 percent stocks and 40 percent bonds, exemplified by the Vanguard Balanced Index Fund, fell only 22.2 percent. And a more conservative portfolio with one-third stocks and two-thirds bonds, like the Vanguard Wellesley Income Fund, fell only 9.8 percent.

These numbers provide a compelling argument based on history for diversification and long-term investing, despite whatever worries you may have about the current state of American politics.

“Our best advice is stay diversified, stay the course and remember the role of stocks in your portfolio,” said Joe Davis, global chief economist and head of the investment strategy group at Vanguard.

For, say, a 20-year-old with money that she won’t need for 50 years, a portfolio containing only diversified stock investments may make sense. For a 70-year-old facing retirement, a large dollop of diversified, high-quality bonds may be smart, even though bond returns may be constrained or negative, with interest rates possibly rising from current low levels. (Bond prices and interest rates move in opposite directions; while higher rates mean more income, they also imply lower prices on bonds.)

In a stock market downturn, high-quality bonds are likely to perform well, Mr. Davis said. “Bonds have been negatively correlated with the stock market, and that’s very valuable,” he said.

Based on the past, the outlook for the next five to 10 years isn’t wonderful. Valuation measures for both stocks and bonds suggest that returns will be lower than they have been, but that has little to do with Mr. Trump. It was the consensus before the election results came in, and it was based mainly on the relatively high levels of asset prices and on the slow growth expected for the economy. It implies that investors should exercise patience and self-restraint.

All of this also implies that history is relevant, of course — and that could be a mistake. It is possible that Mr. Trump will throw America onto a new path that isn’t captured by past market statistics.

How likely is that? No one knows. For what it’s worth, the stock market isn’t predicting a dystopian future. To the contrary, despite political turmoil, stocks have been extraordinarily steady, performing as though there were no clouds on any foreseeable horizon.

Consider that the Standard & Poor’s 500-stock index hasn’t dropped 1 percent in a single day since Oct. 11. That’s unusual. There hasn’t been a comparable stretch since 2006, according to Bespoke Investment Group, an investment advisory firm based in Harrison, N.Y., and, before that, it last happened in 1995.

The market has generally not had major declines soon after such periods — though big declines have occurred sooner or later. The problem is that it is very difficult, if not impossible, to know in advance when such a decline is about to start.

If we are on the brink of one now, cash would be better than stock, but pulling out of the market carries a major risk of its own — missing out on stellar returns.

So far, the stock market has loved Mr. Trump. Bets on specific sectors like banks, private prisons and oil companies have paid off handsomely. The rally could continue for months or years — there’s no way of telling — and if you get out now, you may not know when to jump back in.

“There are people who exited the stock market in 2008 and never returned,” Mr. Davis said. They missed one of the greatest rallies in history. From the start of 2009 through January, the overall market has tripled in value, including dividends. That bears out the claim that it has been better to stay in the markets — as long as you have been able to hold on for very long periods.

But if you are rattled now and determined to liquidate your holdings, he said, it’s important to decide in advance what it will take for you to return. It could be a specific political outcome or a market drop of, say, 20 percent. Whatever it is, Mr. Davis said, write it down.

Beyond that, remember that a long-term and well-diversified bet on the stock market is an investment in long-term economic growth. Unless we head into another dark age, that’s a good bet.