Will the Election Affect My Portfolio?

Every four years, as the presidential election season ramps up, concerned clients will ask us how they can protect their assets against a particular outcome. Yet, contrary to what investors might believe, historical data shows that presidential elections results do not significantly affect investment returns.  

In previous elections, we have discussed the extensive body of research that supports this finding, as well as the reasons behind it. For one, politics is complicated. Even if a candidate proposes a specific policy on the campaign trail, that policy will be reshaped by the legislative process, if it even makes it that far. Second, it’s very difficult to connect one policy to a particular outcome; too many factors contribute to market returns. And, finally, it is impossible to predict external events that can disrupt the economy—such as September 11 or COVID-19.  

Any attempt to prepare for the future that requires you to accurately predict the future is misguided. In the investment community, we refer to this practice as “market timing,” often a losing approach. At Truepoint, we advise our clients to ignore short-term noise in favor of a consistent long-term plan. And when it comes to your portfolio, elections are no different. 

In the past, holding this position has felt a bit like swimming upstream. Especially during heated elections, a chorus of voices in the “pundit class” often seemed to thrive on ramping up anxiety and encouraging investors to take preemptive action.  

But in this election cycle, we’ve been heartened to notice a new trend. Many analysts are citing the same research we’ve touted in elections past and are advising their audience to stay the course. Some are even looking back to previous examples of analysts recommending specific investment actions that turned out to be very ill-advised once the election dust settled. While hindsight is 20/20 and these tales might seem amusing now, you probably wouldn’t be laughing if you sat out the 2013 S&P 500 rally, with an annual return of 29.6%, because you followed the advice to buy up Treasuries before the election, believing stock markets would respond poorly to a second Obama term.  

We’re pleased that more voices today are counseling investors to take the long view. Here at Truepoint, we stand by the same data-driven approach we’ve taken in every other election cycle. Even when volatility increases—whether it’s in political campaigns or market returns—investors should resist market timing and adhere to their customized, long-term financial plan. 

But maintaining calm in tumultuous times is often easier said than done. We recommend these three tactics to help you adhere to your plan during election season: 

Focus on what you can control.

When people’s anxiety increases, they often hyper-focus on issues over which they have no control—the rate of inflation, daily stock market returns, or the Federal Reserve’s decisions. But most financial success stems from personal actions—your savings rate, your discretionary spending level, and avoiding unnecessary investing costs, like high management fees or short-term capital gains taxes. Decisions in your own house typically have much more impact than what happens in the state house.   

Track progress toward your specific goals.

In a 24-hour news environment, it’s easy to become consumed by daily headlines and “what if” scenarios. However, these issues will not materially disrupt your personal progress. This is why a tailored, comprehensive financial plan can be so beneficial. It enables you to identify specific milestones and help you maintain much-needed perspective. Your motivation should not be to beat every possible benchmark at every possible moment; this leads to emotional decision-making and constant second-guessing that will undermine your progress. Instead, track progress toward your unique goals, and you will find it easier to tune out distractions and stick to your plan. 

Remember: you will have time to adapt.

To be clear, we are not arguing that politics has no impact on your personal finances. But most political change happens slowly, giving you plenty of time to adapt and adjust. No policy is arguably more impactful than the tax code, but it is also notoriously complex and difficult to understand. Rather than trying to parse out the impact of code not yet written, partner with a tax planner who understands your entire financial plan. At Truepoint, each client is assigned a team of professionals, including investment managers, financial planners, and tax specialists, who coordinate on a comprehensive, dynamic, and individualized plan. These experts stay up to date on proposed legislation and are amply prepared to make adjustments whenever new laws are passed.

Regardless of campaign rhetoric or election outcomes, our process at Truepoint will not change, even though our specific recommendations will adapt to meet new conditions.