What We're Thinking: Presidential Elections

 

What? So soon? This will be the 9^th Presidential election I’ve lived through since acquiring a Series 7 securities license in 1987.  Decades ago, Mario Cuomo summed up the season perfectly: “You campaign in poetry; you govern in prose.” We’ll be hearing a lot of poetry in the next few months.

People ask, “What will happen if so and so is elected?” Or more bluntly, they assert, “If that person is elected, something terrible/wonderful will happen.”

There are two questions here. One is about the Presidential Cycle. This Fidelity piece explains it quite well. Here are the takeaways:

·       History suggests that US stock market returns are correlated with the 4-year presidential election cycle.

·       The first 2 years of a presidential term have been associated with below-average returns, while the last 2 years have been well above-average.

·       But there are some clear exceptions. The outlook for the economy and corporate earnings matters most.

The second question is about Party influences. Does it matter if R's or D's get elected? Nope. But go ahead and twist the data to fit your narrative. We put it in the pile with the Super Bowl indicator, sunspots, and last New Years Eve's resolutions.

Here's the punchline. “…the 2020 election will have less impact on the markets than some suggest. Ultimately, it's the long wave of economic fundamentals that drives markets beyond any one election or any one party.”

So, here’s what we need to do. Install a mental and emotional firewall between our political preferences and our investments. They can't have a civil conversation. Keep in mind that the purpose of media is to arouse your passions, stimulate your emotions, make you click on something, and maybe break that firewall. Our purpose is to give you actionable, evidence-based information, so you can confidently get on with your life.

Financial plans are designed to sustain you for 15, 25, maybe 40 years. One election is not going to change that. Sticking with your asset allocation, having a comfortable cash reserve, staying diversified, and rebalancing as necessary will carry the day.

Enjoy the poetry.

Update: On September 3, 2020, John Rekenthaler at Morningstar posted an article titled "Presidential Elections Don't Matter (for Investments)." The link is here. 

Update: On October 12, 2020, Ben Carlson's blog post is titled "Don't Mix Your Politics With Your Portfolio." You can read it here.

Jim Cosgrove, CFP, Plano, TX             jim.cosgrove@verizon.net      972-489-0262
Jim Cosgrove, Partner, San Jose, CA   jimcos42@gmail.com             408-674-6315