It is certainly safe to say that money is an emotional subject. When markets are good, we spend a lot of time telling people not to get too excited. When markets are bad we spend our time telling people not to be too concerned. Emotions and successful investing do not go together. If you let greed or fear get the best of you, it is very likely that will cost you dearly in the long run.
Politics is also an emotional subject. Probably more emotional than money. Emotions seem to be running at a fever pitch with regard to the 2016 presidential election. However you feel about this election and these candidates, I am guessing that your feelings are strong …. very strong. I would also guess that fear and concern rule the day.
Let me get to the end. Do not marry your politics with your portfolio. If they are married, your politics and your portfolio need to be divorced. Period.
According to S&P Global Market Research, the S&P 500 has averaged 6.1% per year in presidential election years since 1948. That’s 1948. And 76% of the time there were positive market returns. If you are doing the math that is 12 of 16 elections. While we are on the subject, there has been virtually no connection with returns and which party won the election. The past is not predicative of the future, but we don’t have anything else to go on. And it’s never different this time!
History has also shown that those who make portfolio moves in anticipation of short term market movements have the odds of success severely stacked against them. That’s probably because short term market events are random and unpredictable. What it takes to be a successful investor is exactly the opposite of what it takes to be a successful weatherman. Folks who forecast the weather look pretty smart when they make short term forecasts. Ah, but look out three or four days or a week and the odds of being correct decrease. The odds of consistently predicting short term market movements are very long. The odds of successfully riding long term market moves are much better. Just look at your long term investment returns.
Regardless of your investment strategy, you have a very well diversified portfolio of investments that is constructed and managed in a way to deal with a wide variety of potential financial events. It’s a long term strategy designed to give you some protection in bad times and make reasonable returns in good times. If you have known us long enough, you know that.
Yup, we are likely to see some market volatility before and after this election. Have you considered that this volatility might be upward volatility. Or not. History says that the markets will get back to doing whatever they were doing before the election sometime after the election. Presidential elections have historically been speed bumps in market cycles. Speed bumps!
In conclusion, divorce is a good thing when it comes to your money and politics. My long term forecast calls for sunny days, light winds and calm seas, occasionally interrupted by short periods of scary bad weather. And there you have it! Put on the rain coat and boots. Have the umbrella handy. Call if you need to talk.
Please keep your emotions in check and your faith in the future intact. And if you are really bummed out, just ask yourself where else in the world you would rather have been born? Or in what other country would you rather be living right now?
Michael J. McNamara, Ph.D., CFP
Certified Financial Planner TM