3 Election Cycle Investment Considerations
The party conventions are over. The political cycle is ramping up. And there is a great deal of noise and fury in the media about the presidential candidates and what the election could mean for business and markets. I write today, to you, MY constituents, investors, with my thoughts. It is not partisan, it is not agenda driven.
Here is my message: before you get to thinking that your investments may be drastically affected by the election outcome, I want to share 3 key considerations for your portfolio:
First the “winner’s affect”
- Historically, betting your portfolio on electoral outcomes is a fool’s game. Not only would you have to accurately predict the winner but you would also have to correctly measure which markets, sectors and individual securities would most likely benefit from the election outcome.
- Pockets of markets may be affected by policy promises or platforms. But remember, policy change is not always easy, especially if the winning candidate’s party isn’t in complete control of Congress. The election is not a referendum. Promises do not immediately become policy.
- The “winner’s affect” may bring both pros and cons to you individually. Let’s say you are a laborer. You may win as a laborer with wage increases, but lose as an investor in your company stock. Both are important.
Second, timing the trade
- Even if you can successfully guess who is going to win and which markets will be affected, realize that someone else has probably figured that out too! By the time you wish to act, any benefit you hoped to garner may have already been priced into the market, arbitraged away.
Third, party generalizations
- I’m hearing some generalization suggesting that if you’re a Democrat, you’re considering selling your portfolio if Donald Trump wins and if you’re a Republican, you’re selling if Hillary Clinton wins. A great deal of research has been done that suggests no one party is better or worse for the stock market, consistently, over time, at least with any degree of statistical significance. So while you may have a strong opinion, your portfolio, may not.
Maybe this cycle will be different. Or maybe history will repeat itself. But rather than guess how the election will go, or assume how the rest of the investing public digests what the results will mean financially, I suggest staying focused on the things you can control; having a risk-appropriate, sustainable savings and investment plan.
In summary, we believe a balanced and diversified approach gives our clients the best opportunity to ride out any short-term volatility that may be attributed to the political process, and stick to their financial plan over time. If you’d like to discuss this more, give us a call. We’re here to help align your personal values, vision and wealth.
No strategy assures success or protects against loss. Investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.