Brace for Volatility After the Election
Election 2020 may be one of the nastier elections in our history, although it isn't unprecedented. Students of American history are aware that we have had plenty of nasty times in our political past. Alexander Hamilton's death at the hands of Aaron Burr and the near fatal caning of Senator Charles Sumner by Representative Preston Brooks on the floor of Congress are examples of just how bad things can get.
Elections can bring out strong emotions and biases. Nevertheless, history shows that elections may cause some market volatility during the election year, but they essentially made no difference in long term investment returns.
Presidents get a lot of credit and blame for the health of the U.S. Economy and the state of the financial markets. However, there are a lot of other factors that determine economic growth and market returns that presidents have very little influence over.
This chart shows that staying invested regardless of the political party in office pays off. Although past results are not predictive of future returns, a $1,000 investment made in 1937, when Franklin D. Roosevelt was president, would be worth over $14 million today. Yet over this period of time, the United States elected seven Republican presidents and seven Democratic presidents.
I can say with certainty that after the election the markets will go down and the markets will go up. I use the plural because there are many different markets and sectors: large cap value, large cap growth, small cap value, small cap growth, international value, international growth, real estate, commodities, emerging markets, international bonds, domestic bonds, U.S. government treasury bonds, junk bonds, and so on. Whatever happens, some of those markets will decline and some will appreciate.
In an earlier blog post regarding market volatility following the COVID-19 shut down in March, I shared why a disciplined investment approach is key. The best thing an investor can do is have a portfolio that is well diversified and is suitable for his or her time frame. Such a portfolio will do well in rising markets and provides rebalancing opportunities in declining markets by moving more conservative holdings to more aggressive ones that are “on sale.” If your time frame for needing money is one year, equities may not be not suitable for you as the volatility is too great. However, if your time horizon is longer out, such as 5+ years, you may have the luxury of riding out storms of volatility until markets eventually recover.
Over my 38 years at Healy Group, I've come to realize that, as passionate as people may be about politics, it usually doesn't pay to make investment decisions based on those passions. The bigger issue has to do with whether we think the U.S. and world economies will continue to expand over time. If you don't think they will, investing in equities may not be suitable for you.
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About the Author
Rich Preuss, CLU®, ChFC®, Financial Advisor/Owner
Rich views his work as connecting his clients' money to their values. He believes that money management isn't just about rates of return, asset allocation, and maximizing wealth; it is about creating a better life for those you love and creating a better world. Efficient use of your money and resources positions you to accomplish this.
When Rich has spare time, he enjoys spending it with family, reading, cycling, coaching soccer, and hiking the Appalachian Trail (600 miles down, 1500 to go). He's also enjoying working with his fellow owners at Healy Group to develop a better sense of humor. No. 3228667 DOFU 9.2020
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.