Managing your financial life is not just about money.

Investment Process Refresher

I’m not quite sure how to describe the collective mood of the country surrounding the upcoming election.  It probably defies description this year especially.  What I do know is that elections do tend to make people worry about their investments.  With that in mind I thought now might be a good time to do a refresher on how we manage investment portfolios.   If Mike’s article didn’t make you feel better, maybe mine will!

The first and most important point, as Mike mentioned, is that all of our portfolios are diversified.  As U.S. citizens our portfolios have a domestic bias, but U.S. assets are by no means your only holdings.  The market may well react negatively to the election of a new president, but odds are something in your portfolio will be there to cushion the blow.

Second, our investment strategies are specifically designed to avoid any type of short-term projection.  Emotion drives the market in the short-term, and emotions are awfully difficult to predict.  Our investment strategies use an investment time horizon of 5-years.  In other words we assess the investment world now, make some projections on where we are likely to be in 5 years, and design our portfolios accordingly.  The significance of the 5 years is because we believe that 5 years is long enough to take emotion out of the equation.  The election of a new president and the implementation of new policy may well affect our 5 year projections at some point.  But those assessments will be made post-election when we have some detail, not on guesses before the fact.  We will not speculate on what might happen if a certain person gets elected.  (Okay, we will do that, but we will stay disciplined enough not to let those speculations drive our investment strategy)

Third, we continually test our portfolio risk over 1-year periods, and if we believe the risk over the next 12 months is unduly high, we will make changes to our strategies.  Our assessment at this point is that this election does not represent a risk that needs to be addressed with strategy changes.  It should be noted that this would be the case with almost any election, as accurately forecasting who will get elected and how the markets will react is a fools-errand.  However, we will continually test our portfolios in the aftermath of the election, and on an ongoing basis and we most certainly make changes if/when they are warranted.

Hopefully that made you feel a little better.  If not, try these.  (1) The odds now heavily favor the incumbent party winning the presidency, and the markets tend to like the status quo.  (2) If you are worried about an upset and a negative reaction, keep in mind that most of our portfolios are already light on U.S. stocks (for reasons not related to the election).

As always, call me if you have any questions.


Justin McNamara, CFP ™justin-cropped-color

Certified Financial Planner 

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