Much depends on the outcome of the November 3 election. But your investment portfolio is probably not one of them.
With problems of health care To tax policy in the air – and the uncertainty of when we will even find out who the next president is, it’s understandable to be worried about what all of this means for your money. Investors might feel particularly nervous after Wednesday’s stock route, when the Dow Jones fell 3.4% and the S&P 500 fell 3.5% on the two indexes’ worst day since June.
But experts say that a Democrat or Republican taking an oath on nomination day actually won’t have too much of an impact on how your investments fare over time.
“For long-term investors, elections mean little, if anything at all,” says Brian Walsh, Jr., financial planner at Walsh & Nicholson Financial Group.
What history tells us
Politics tends to receive too much credit and too much blame for stock market performance, Walsh says. According to research of the investment company Vanguard Going back to 1853, stock returns are almost identical no matter who occupies the Oval Office. The average annual returns of the US stock market between 1853 and 2015 were 10.7% when a Democrat was president and 10.5% when he was a Republican. And there is very little impact on fixed income investments, like bonds too, Avant-garde Noted.
“The stock market tends to operate at its own pace and its own whims,” says Adam Grealish, director of Investing at Betterment.
And while there can often be volatility in an election year as investors scramble which candidate will do what, years when people go to the polls are generally good for investors. Charles Schwab found that since 1928, the S&P 500 Index has finished on a positive note 74% of the time (17 of the last 23 presidential years) with an average annual return of 7.1%.
“Election years are more barking than they are biting,” says Walsh.
The volatility you see during election years is mainly due to family investors being more concerned than they should be, he adds.
What drives market movements
So why doesn’t the result of the presidential election have more impact on the market?
What determines stock returns is very complicated and not one-dimensional, Grealish says. (Did you think the market would reach new heights in the midst of a global pandemic? Probably not.)
From corporate earnings to trade and globalization to investor sentiment, Wall Street has many factors to watch out for, other than who the president is and whether the House and Senate are turning red or blue.
But even tapping into the presidential candidates themselves, there are several details to consider. While many investors are focused on what a Biden presidency might mean for tax policy, other factors could offset any changes, such as the government’s stimulus measures or who it appoints as the next Fed chairman, Grealish says.
What you can do
In short: don’t overthink the changes election night might make to your investment portfolio.
But there are other concerns investors might want to consider such as the continued virus cases and the amount of debt incurred by the U.S. government. Walsh recommends allocating a portion of your portfolio to securities that will protect against inflation, such as real estate, gold, and inflation-protected Treasury securities. It could be like having 80% of a portfolio in a core portfolio of diversified funds and then allocating the rest to those inflation hedges or other tactical strategies to take advantage of the current environment.
Walsh says that as you approach retirement, the percentage you allocate to those inflation-indexed or tactical stocks doesn’t have to change – but of course, reconsider how much of that 80% goes to stocks versus. relatively safer options like bonds.
Overall, it’s important to stick to the basics: rebalance regularly and diversify. Review your asset allocation – which should be based on your age, specific financial situation, and overall investment goals – and make sure it matches the level of risk you’re willing to take. Many financial planners recommend subtracting your age from 110 or 120 to find the percentage of your portfolio that should be in stocks (the rest can be in fixed income options like bonds), according to Money. earlier this year. When this asset allocation deviates from your target, rebalance yourself, i.e. buy and sell the different assets in your portfolio to bring you back to the desired weighting.
That way, you won’t have to point out the ups and downs in the market that we’ll likely continue to see throughout this pandemic, regardless of who’s next president.