Two Financial Strategies for Election Season

The day after the 2016 election an acquaintance sold about 30% of the stock mutual funds in his $750,000 retirement account and put it in cash. After the market jumped up over the next six months, he estimated he’d lost out on gains of about $35,000 due to his emotions ruling his decision making, he later told me. This year’s presidential election is heating up and many are worried how a contested election might affect the stock market. In fact, daily volatility – ups and downs – is rising in anticipation of the election, which isn’t unusual during pre-election months. As evidence, the S&P 500 was down 3.9% in September even as its 3rd quarter return was up 8.5%. 2020 year-to-date the index is up almost 4%. So, with things getting hotter by the day, what should investors do to prepare themselves – other than stay off Facebook and Twitter – to help avoid the mistake my acquaintance made four years ago?

Stay focused on your goals:

• If you intend to pull money from your retirement or investment accounts in the next 6 months for an expense, put it in cash or a very safe bond mutual fund. That’s good advice all the time and generally how we help clients who are taking income from their savings for regular income;
• If you don’t intend to withdraw money from your retirement accounts for another 10-20 years, focus on that target. It isn’t always easy, but reminding yourself the ultimate purpose of this money is for your future self, should help.

Take advantage of market changes:

We rebalance our clients’ portfolios – all their accounts such as their 401(k) or 403(b), IRA, Roth IRA, etc. assembled together – regularly to make sure they’re still invested according to the strategy we developed just for them. As a result, when there are large market swings, we can take advantage. For instance, if our strategy for a client is for them to hold 25% of their portfolio in large company mutual funds and another 25% in medium and small company mutual funds, a drop in the stock market can pull those percentages down. We can then move money from another asset class – bonds or international stock mutual funds, for instance – and invest it when stock prices are lower and to restore the percentages according to the client’s strategy. Buy low, sell high.

Historical stock returns under D’s and R’s:

How much U.S. presidents even influence the stock market can be debated but here is how the stock market performed collectively under presidents of both parties, according to research by Fidelity (Essentially, the same):

• Republican president – average annual return of 8.6%;
• Democratic president – average annual return of 8.8%.

As they say in Great Britain, Stay Calm and Carry On. Vote and stay focused on your personal time horizon – the past says the future of the stock market is bright.

Steve Byars, CFP®