Past Reflections on Elections
In the wake of the recent election and the emotional unrest that has ensued, it is beneficial to recall our past writings on this subject.
Three months ago, I posted a blog entitled “Election Year Anxiety” in which I discussed the anxiety that people often go through during a presidential election. I mentioned how these emotions can cause them to consider changing their portfolio allocations due to the fear that the candidate they oppose may win the election. In this blog I mentioned the difficulty in identifying systematic return patterns in election years. The key takeaway is to not let your emotions cause you to alter your portfolio.
Before our last Presidential election in 2016, we wrote a newsletter that addressed the question of whether the election should affect your investment strategy. You can read it again here. It is just as applicable today as it was four years ago. The short answer is “no.” You should not let the Presidential election affect your investment strategy. Election season is a historically very turbulent time for investors. Remember that long term success in investing depends more on the strength of the US economy than on which party occupies the White House.
At the end of every year and especially after Presidential elections, we enter the Prediction Season. This is where we reach a fevered pitch of predictions coming from so-called experts explaining how you need to change your investment strategy to deal with the “new” economic environment. The changes that they recommend are rarely helpful, and study after study has shown that these “experts” demonstrate no statistically meaningful degree of accuracy in their predictions.
Stay the course through unpredictable markets
The unpredictable nature of markets has already been in full view during last week’s election. The S&P 500 rose over 7% last week alone. I do not know anybody who predicted this. Some predicted a blue wave was going to cause markets to drop dramatically. Some believed a Trump victory would cause the markets to surge since the fear of higher taxes would be off the table. But I did not hear anybody predicting that a Biden victory along with the Republicans holding the Senate was going to cause the market to have a banner week.
As you have heard us say many times, you do not need to be able to predict the short-term to be a successful investor. One thing is certain; there will be more surprises to come. Maybe the Democrats will end up winning the Senate after the runoff elections are completed. This will likely cause the market to drop - or maybe it will cause the market to rise. There could be much more pushback before Trump concedes the election and the possibility of rioting is still a reality.
There is no doubt that this has been a very emotional, and intense time in our country’s history but I am confident that we will get through it and go on to see better days. In the meantime, rest assured that you do not need to make any major changes to your financial and investment planning as a result of these factors alone.
Stay safe and don’t hesitate to reach out if you have any questions or concerns that you’d like to discuss.