Context for evaluating the upcoming elections and your investments.
Elections are impossible to escape – creeping their way into the news, social media, and every day conversations. And if you let it, it can creep it’s way into your portfolio. Regardless of your stance, the potential outcome of a presidential election is one of those moments that can make investors feel the impulse to do “something” with their retirement .
After all, it’s only natural – we’re human and we instinctively feel the need to protect what we’ve painstakingly built. However, rather than speculate for days on end, it can be helpful to take a look at actual data to inform our decisions and set a foundation for our behaviors.
What does history tell us about the elections and your investments?
Adam Schickling from Vanguard conducted a historical study across 150 years of returns from different administrations. The result? “…a modest return differential under administrations of different parties. “However, this difference is statistically insignificant and time-period-dependent.”” Another interesting aside from the study, the variations before and after an election are practically identical.
If we want to take a look with a different set of eyes, Dimensional Funds also conducted an analysis and found similar results. As noted in the video, more important than any individual election result was the long term trajectory of the overall market (positive) – one worth partaking in.
What’s actually important about the elections and your investments
If you’re not one for research and data – and to be completely fair its not always an indicator of future results – let’s take a pragmatic approach. Just about any portfolio will have exposure to a number of publicly traded companies – could be a stock, could be a bond.
As a result of an election, what are the leaders of these public companies more likely to do? Will they cease business operations altogether and close up shop? Or will they pivot and develop a strategy to push forward? As an investor, and not a speculator, I’m likely to point to the latter.
That’s not to say there won’t be challenges and road blocks as a result of a change in policy – those are plentiful and as old as the hills. Businesses come and go like the changing tide and there’s no guarantee the giants of todays industry will be here tomorrow, but I think there’s a good chance the overall market will be (hint hint at diversification) – and I feel comfortable placing my eggs in that basket.
Developing a strategy for the elections and your investments
Creating a solid foundation for your retirement is more important than speculating on the outcome of a race. It’s this foundation that will help you withstand bouts of volatility – recessions, inflation hikes, pandemics, and anything else we can throw at it.
As mentioned in my whitepaper, a diversified portfolio will have exposure to stocks and bonds, both domestic and international. How much in each will vary on your individual circumstance.
It’s also why we suggest clients take the long view as opposed to focusing on the near term. Is your portfolio specifically designed to “expire” in the next four years? Chances are its not – even if you are retiring in the near future. A hundred years ago the average retirement lasted a few years. With technological and medical advances, today’s average retirement can last more than twenty years.
The idea is to focus on variables you can control: don’t take on too much or too little risk, make sure your expenses are in line with your income and so forth. So if you’re panicking about who may or may not be in office come January, remember, chances are your portfolio will be here way past the next term – and potentially several others.