With election time now getting closer, we are inundated with opinions and prognostications about not only who will win but what that victory will mean for the markets. When you couple the uncertainties of the election with the other trials facing our country including, but not limited to, high unemployment, the economic and personal consequences of the pandemic, and social unrest, investors are tempted to adjust their portfolios in anticipation of what may lie ahead. We can’t tell you how many times we have heard, “but this time is different – our nation has never felt so divided and had so many challenges to tackle” over the past several weeks. And it is different, but I urge you to consider these words by billionaire businessman Warren Buffett who published these sentiments on March 1, 2013, shortly after Obama won his second term:
“America has faced the unknown since 1776. It’s just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful). American business will do fine over time. And stocks will do well just as certainly since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a post-game that is heavily stacked in their favor. … The risks of being out of the game are huge compared to the risks of being in it.”
History tells us that there is no correlation between which party is in the White House or which party controls Congress and how the markets perform. Both parties have periods of significant growth and significant declines during their time of majority rule. When it comes to the economic implications of the election, key concerns include the impact of higher taxes both on corporations and individuals, the skyrocketing deficit, high unemployment, and trade wars. These are all valid concerns, but as investors, rather than focus on specific issues, we need to ask a different question: Should these dilemmas facing our country change the way we invest?” In our opinion, the answer to that question is no.
The market is constantly adjusting prices to take into account all of the risks of owning stocks, including political risk. When risks go up, stocks are likely to adjust downward to provide investors with higher returns going forward, and vice versa. Because none of us can predict who will win the election much less how policies will change as a result and how those changes might impact investment returns, in our opinion, the best way to deal with political uncertainty is to design and implement a low-cost, broadly diversified global portfolio designed to meet your financial planning objectives, and stay disciplined.
After all, presidential terms are four years long. Properly structured investment portfolios are built to last a lifetime. Hopefully, that helps to put the economic implications of the election into perspective as you consider your next steps.