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Presidential Elections and Your Investment Success are Not as Related as You May Think

Presidential Elections and Your Investment Success are Not as Related as You May Think

October 28, 2020

Five Tips for Moving Forward if You’re Anxious About Your Portfolio in an Election Year

Are you concerned about what the presidential election may mean for the markets? If so, you’re not alone. Investors always tend to get anxious in an election year, and this one seems fraught with quite a bit more angst and uncertainty than usual. Still, if you’re tempted to get out of the market for a while and let things “blow over,” we suggest you take a beat.

Here’s why: Much of what we hear in the news, or even in conversations among our family and friends, can lead us to believe that there is a strong correlation between who sits in the White House and how the markets perform. Many people are convinced their investment prospects will be sunk if one candidate or the other wins this election, but that’s simply not the case. History and market data show no correlation between the person/party of the U.S. President and the success or failure of the stock market.

So, if you’re facing serious investment anxiety because of this election, below are five tips to help you move forward into the unknown with a bit more confidence.

Tip #1: Don’t Make any Big Moves

Market volatility is always a bit unsettling, even when you know upfront that you’ll have to face it as an investor. Are presidential elections consequential in many ways? Of course, they are. However, if you have a well-planned investment strategy in place to accomplish long-term goals, you’re probably best off sticking to the financial strategy you’ve already committed to. Any changes you make now due to an impending election would be fear-based, and investment decisions are best made without emotion. The outcome of the election is unknown, which is unsettling to many investors. However, as with any market concerns, staying the course and continuing to execute your financial strategy should help to mitigate any potential negative impact.

Tip #2: Stop Trying to Predict What Will Happen

You can drive yourself crazy with “if this, then that” thinking, or by listening to the political pundits make unsubstantiated predictions but remember that no one (not even you!) can predict or time the market. Two useful examples of how completely unrelated politics and the markets are comes from a recent Republican president and a recent Democratic president. George W. Bush was a strongly free-market Republican, yet the subprime mortgage bubble burst – and caused a global crisis – while he was in office. Conversely, Barack Obama was a progressive Democrat who worried many investors, yet the stock market went up each of his eight years in office. Then Democrat-leaning investors sold in fear when President Trump was elected resulting in a swift but short correction. Such investors regret their hasty decision now. So, if you’re trying to make predictions to protect your assets, remember that many investors got it completely wrong with the country’s last few presidents. Indeed, even in the last few days, professional investors have changed their minds on the impact of a potential Biden win, going from negative to positive.

Tip #3: Remove Your Political Beliefs from Investment Decisions

We’re human, so this is incredibly difficult. However, keeping your politics separate from your financial decisions is a habit that is likely to benefit you in the long run. Take it from Berkshire Hathaway Chairman and CEO Warren Buffet, who once said in an interview with CNBC that for about half of his years of now-legendary investment success, the person sitting in the White House was not the candidate he had supported. He has made it a personal rule not to mix business and politics because he has seen over his lifetime – lived under 15 of the 45 U.S. presidents – that the country and the markets continue to move forward regardless of who wins the White House.

Tip #4: Remember that High-Quality Companies will Continue to Thrive

One of the bigger worries of investors is that a president will put punitive regulatory measures in place that make it hard for companies to continue to succeed – and to pay their investors dividends. This could certainly happen, but companies facing new taxation and the like will simply begin managing their businesses differently to avoid whatever activities are being newly regulated. Enterprising, innovative companies who practice financial discipline – those, say, making up the S&P 500 – will find ways to remain competitive and earn returns for their shareholders.

Tip #5: Rest Easy Knowing Nothing Lasts Forever

The stock market is intrinsically full of ups and downs, so it is certainly possible that investors will face losses during the next president’s term – regardless of who is in office. It may even begin to look like government policies that have gone too far in one direction or another are to blame for some of the volatility we’ll experience. If this happens, remember that our democracy is such that we get to influence national politics every two years. If voters are unhappy with how their portfolios are faring over the next 24 months, they can vote to remove the entire U.S. House of Representatives and one-third of the U.S. Senate in 2022.

Final Thoughts on Investor Anxiety in Presidential Election Years

The tips above aren’t provided because you shouldn’t have anxiety about your portfolio. Indeed, most investors can and should be thinking about their long-term market success and considering how to mitigate potential threats to it in strategic and factually based ways. However, we hope you take a measure of solace in the above information, and especially in the fact that history has shown much less correlation between presidents and market performance than most people believe.

If you don’t feel confident in your long-term investment strategy, or if you have concerns about particular decisions you have already made, it’s time for a conversation with your financial advisor. We encourage our clients to openly communicate with us about any concerns, and we are happy to provide a second opinion for anyone who may feel uncomfortable with their current financial advisor. Please reach out to us today if you’d like to begin a conversation about your investment strategy and financial plan.

Wellacre Global Wealth Advisors, Financial Planning Consultants, Santa Monica, CA