Allworth Co-CEO Scott Hanson takes a look at why you should stick with your financial plan - no matter who ends up winning the White House this year.
Have you been contemplating whether you should change your investment approach to protect your savings in case the “wrong” person or political party wins the election?
Don’t.
Reacting to the impact that a presidential election might have on the markets is in fact “timing” the markets and one of the biggest mistakes you can make.
No, I can’t predict the future. Nor can I (or anyone) predict the short-term direction of the markets. But I can tell you with great certainty what history reveals. And I can also draw on my 30-years of experience as an advisor and CEO of one of the fastest growing firms in the country.
It’s a fact that people who stay invested—and I mean, always and consistently stay invested—typically end up in much better financial shape than those folks who find reasons to jump in and out of the market based on fear, or what they think might happen in the future. 2
So, when it comes to elections and investing, what advice do I give members of my own family?
The same advice I give clients. I tell them that no matter who gets elected president, this year, or any other year, that they should stay with their plan and stay invested.
But why? Especially when everything seems to be going south.
Let’s talk turkey, because, in almost every discernable, measurable way, 2020 has been one for the ages.
Thousands of businesses have closed. Industries such as hospitality and the airlines have been decimated. Fires and storms have destroyed entire regions and thousands of homes. Our go-to escapes of sports (including the Olympics) and parties and stays at the beach have been delayed or cancelled.
When it comes to our economy and the state of things in general, pretty much everything and everyone has endured eight undeniably crummy months.
The fact is, with the general exception of the surprisingly resilient stock market, pretty much nothing has gone well.
And now, somehow, after everything that we’ve been through, it’s time for what many are calling the biggest election in history. (I would argue that until the elections of 1789 and 1860, just to name two, vanish from our nation’s timeline, then 2020’s election is most definitely not the biggest in our history... but I digress.)
In the chaos-causing, cauldron-o’-drama that is the ratings-dependent 24/7 news cycle, we get overwhelmed and we lose track of what’s happened before.
Note to self: At times like these, update, review, and work more closely-than-ever with your advisor to make sure you are on track to get where you want to be.
But, above all else, stay with your investments and your financial plan.
Because, frankly, it is at times like these that a great financial plan (and advisor) really earns its keep.
That’s not to say there won’t be a hiccup in the markets today or tomorrow or soon after.
Gosh forbid we hit a rough patch. But to that possibility I would ask you, when in all of history has there not been economic or market hiccups? And, for further clarity, I would ask you to take a deep breath and then take a moment for yourself and review the history of the markets.
To repeat: Review the markets, but do not attempt to “time” them.
“Marking timing” based on the fear that we are experiencing something right now that we can’t endure or that we’ve never seen before is an emotional response to a world that feels out of control. And none of us is entirely immune.
Stay calm. Stay the course.
So, who’s going to win the election?
Market history shows it doesn’t matter.
Need evidence? Here are a couple of key facts pertaining to political parties and presidencies and their impact on the markets.
I recently saw a bold headline proclaiming that stocks have always performed better when a Democrat is in the White House. Not 20 minutes later, I heard a well-known radio host swear that markets have always risen more under Republicans. Both sources backed up their claims with iron clad stats and gobs of fear mongering.
Both are entirely wrong.
The only thing this shows is that you can prove just about anything when you cherry-pick statistics.
The facts are, that over the last eight decades, markets have done quite well almost no matter who was in the Oval Office. 1
Case in point, the S&P has averaged about an 11% return under administrations of both parties over the last 75 years, only ending down twice (Nixon and Bush II). And yet, each time it ended down, during the next administration (Ford and then Obama), the S&P not only recovered, it recorded two of its best historical cycles.3
The point is, when it comes to the markets and the economy, complex considerations (some of which are decades in the making, others of which are purely random) are in play. And either party that claims historical market superiority is almost certainly in the midst of a campaign (or merely uninformed).
I recently reviewed a fascinating analysis of presidencies and market performance. This study looked at numerous sample portfolios over the last 12 decades (120 years) and showed that the best-performing portfolio of all was one that stayed completely invested during every administration, no matter who was president. 2
But that’s not all.
The same study analyzed “party-specific” portfolios, meaning those that only stayed completely invested during either Republican or Democratic presidencies.
And when the study compared those “timed” investment portfolios to the bipartisan, “always in” portfolios?
Even though over the last 12 decades we’ve had a Great Recession, a Great Depression, epidemics, pandemics, a Cold War, two World Wars, Vietnam, Korea, and years upon years of civil unrest, along with 22 different presidents (nine Democrats and 13 Republicans), a portfolio that remained invested throughout every administration dramatically outperformed any other. 1
And, most telling, the partisan-timed portfolios that jumped in and out of the market based on which political party was office?
They came up millions of dollars short. 1
Vote. Stay invested. And if you’re worried about anything related to the markets or your financial plan, speak with your advisor.
Now, who’s ready for 2021?
1 https://www.invesco.com/us-rest/contentdetail?contentId=5991eabf45272710VgnVCM1000006e36b50aRCRD
2 https://www.globenewswire.com/news-release/2020/10/27/2115279/0/en/Investors-Vote-to-Stay-the-Course-No-Matter-Who-Wins-the-2020-Presidential-Election-M1-Finance-Survey-Finds.html
3 https://fortune.com/2020/10/10/2020-election-investing-trump-biden-stock-market-predictions/