On November 3rd, Americans around the country will perform their civic duty by either going to the polls or filling out a mail-in ballot. As that day fast approaches, I have heard from many in my circles who have vastly different opinions of what the market will do should their chosen political leader win the election. Typically, those opinions sound a little bit like this, “If my guy becomes President, the market will sky rocket and prosperity will reign but if your guy wins, then our economy will tank and we will institute a real life version of the Hunger Games!” Ok, that might be a little bit dramatic, but the way people talk on social media is not that far off!
The reality, however, is usually a bit more complicated and does not tend to follow party lines. If one were to look at the last few decades, it would become clear that market returns have much more to do with economic growth and interest rates than the President’s favorite color. As stated in an article from the Financial Times[i], “We should always be mindful that economic cycles cannot be abolished, even by politicians.”
So, what does that mean for you, the reader? How should the average investor be thinking about the upcoming election in relation to their financial plan? Here are a few things to keep in mind:
The plan, the plan, the plan!
As with the majority of my blog posts, I once again want to take this opportunity to emphasize the need for a strong financial plan. Whether you are concerned about the election, COVID-19, civil unrest or any other myriad of societal stressors, your financial plan should be the yardstick by which you measure financial decisions.
Having a plan is especially important when we enter periods of uncertainty because it adds clarity to your situation and helps you make sense of the noise. In addition, it helps you avoid making decisions based on emotion in the moment and rather on your long-term plans for the future.
Opportunity abounds!
If you have a well-constructed financial plan, then you have positioned yourself nicely to take advantage of opportunities in the market. One such opportunity is the potential to invest excess cash when the market is volatile. We may see such an opportunity in the weeks following November 3rd. If there is one thing that the markets hate more than anything else, it is uncertainty. With the large increase in mail-in ballots this year, there is likely to be plenty of uncertainty following election day. It could even be a week or more before we know who won the election.
Such uncertainty could send the market into a frenzy with many large investors selling out of the market to protect their portfolios. In the last decade there has been extraordinarily little opportunity to take advantage of down-swings in the market. If you are sitting on extra cash in your bank account, this Fall may be a good time to deploy it.
Ignore the noise
Mentally, election cycles can be challenging times and, in a year full of challenges, it is important to make sure that your head is in the right place. The politicians and pundits are once again declaring this election as the, “most important election of our lives!” Whether that is true or not is debatable, but regardless of what is being said on TV or online, you can only control your own actions.
Remember that the issues we face now are not truly new to this world. As it says in Ecclesiastes 1:9, “..there is no new thing under the sun.” Turn off your TV, silence your cell phone and stay off of Facebook. Instead of stressing about things you cannot control, do things that matter to you with the people that you care about. Maybe even get away from it all entirely and take a trip with your family. I had the opportunity to just that over Labor Day weekend and it really helped me to reset and put things in perspective!
As always, thanks for reading the blog! I hope you have enjoyed reading it as much as I have enjoyed writing it over the past six months. If you haven’t yet subscribed, click here so that I can send them directly to your email every Tuesday! I am always looking for feedback and new ideas for things to write about. Please send me your thoughts at alex.overbeek@lpl.com. I look forward to hearing from you!