I don’t know if you’ve heard, but there is a Presidential election in November. Every 4 years this seems to add a bit of nervousness for investors. This is the third Presidential election in my short career as a financial planner. In all three election years a number of people have asked me “should I sell before the election?”.
My advice will be the same this time as it was during the prior two elections. The past advice turned out well.
This Is A More Polarizing Time
Much of the country seems to label themselves as members of Team Democrat or Team Republican. What is said doesn’t seem to matter as much as who said it. This tweet by Swedish author, Johan Norberg, sums that up well:
82% of Democrats and 16% of Republicans support single-payer healthcare when told that Obama supports it. When instead told that Trump supports it, Dem support drop to 46% and Rep support increase to 44%. #FactsfromOpen (15 of 100)
— Johan Norberg (@johanknorberg) September 17, 2020
Some members of each team think members from the other team are closed minded. This is ironic. Both sides routinely claim they are citing “facts” to support their opposing arguments. This is also ironic.
More ironically, the overwhelming majority of people do want a similar outcome for our country (good jobs, equal opportunities, better education, healthcare etc.). Yet, we all seem incredibly divided. What is fiercely debated are the methods taken to achieve that outcome.
Wall Street is known for taking simple issues and making them sound complex. Politicians take complex issues and try to make them sound simple. I’d say they’re both good at it.
I’ve read articles about families being torn apart over political beliefs. Friendships have been ruined. It seems sad and strange.
Supreme Court Justices Ruth Bader Ginsburg and Antonin Scalia rarely saw eye to eye on monumental cases brought to their court. But they were great friends throughout their careers together. The proof is below. You don’t get on an elephant’s back with someone you don’t like.
These two people whose decisions help shape the fundamental structure of our country adamantly disagreed often. If they can differ on a major case together during the day, and attend the opera together at night, I think many people could learn from the example they set.
Unified Government Control
If you are a Republican, you may fear unified government control (House, Senate, President) for the Democratic Party. In 2016, a Democrat may have been fearful that the Republicans gained unified government control.
Should we fear for our investment portfolio if one party has complete power over government? The snapshot below from ifa.com suggests we shouldn’t. Admittedly, I found this graphic surprising.
Investment decisions should not be rooted in emotion. Nearly all funds recommended by Meredith Wealth Planning are rules-based. One reason for that is an attempt to remove emotions from the decision making.
Thou Shall Not Time the Market
Most of us remember the 2016 election quite well. What I remember hearing frequently from clients was “I’m afraid for the market no matter who wins”.
Imagine taking action on that pessimism and deciding to sell all of your stocks at the end of October in 2016. In November, the market gained 4.45%. If you were on the sidelines, now what do you do? Buy back in and admit you made a foolish mistake, or wait for a dip? This is decision trap hell for an investor.
The best thing you could have done at that point was to buy back. The US market reeled off 14 straight positive monthly returns from 12/2016 – 01/2018, gaining a total return of over 30% in the process. The result was the longest consecutive positive monthly performance since 1958.
What would have been better, was never selling to begin with.
The Election Isn’t a Secret
There is no edge in guessing the election results. Everyone knows the election is coming. The collective wisdom of market participants has set prices to where they think they should be given the potential outcomes. A guess is just that, a guess. Any dollar you invest in equities should be viewed as at-risk money. Trying to shift from risk-on to risk-off mode is speculating, not investing. A well designed portfolio should not be exposed to more risk than one can bear.
You wouldn’t sell an investment you have in land based off who is elected President. You shouldn’t liquidate an investment in business for that reason either.
Economic growth might be better under one regime than another, but unfortunately that does not indicate much about stock market performance. This September article by Larry Swedroe on Seeking Alpha, shows low growth countries had similar market returns as high growth countries.
If I Had to Guess
I have no prediction on the winner of the election, or ensuing short-term market performance. What I suspect is that the results of the election will be challenged, by whomever loses. Hopefully my suspicion is wrong. Outside of my single vote, the result is beyond my control.
If Congress ends up being divided, it seems unlikely any major legislation will pass during the next Presidential term.
This article is for informational purposes only and is not a recommendation of Meredith Wealth Planning or Mark Meredith, CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the Article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the Article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.