Regular readers of this space know that the economic experts I trust are confident that we are on the cusp of a recession. The coming recession is a real challenge to your financial goals over the next 12 months. A recession is negative Gross Domestic Product (GDP) growth for two quarters or more.
You may also know that in November of this year Americans will vote for a president of the United States. Many clients are asking what they should do in anticipation of the election. Historically, the traditional analysis was that it did not matter who was in the White House, but over the last few years that has changed.
How do presidential elections affect the economy?
More recent data is that the U.S. economy does better, as measured by growth of the GDP, under Democratic presidents, based on Bureau of Economic Analysis data as of September of 2019. Since 1929, the annual change in GDP has averaged 5.2 percent for Democrats and 1.4 percent for Republicans.
And stock market technicians who watch the markets describe the “presidential term anomaly.” The data shows that in Presidential election years the market is up on average 17.9 percent when a Republican is elected, and the market is down on average 2.7 percent when a Democrat is elected. Then in the inaugural year, the market is up an average of 2.6 percent when the new president is Republican and markets are up an average of 22 percent when a Democrat is elected. (Source: Global Financial Data as of 1/12/2018. S&P 500 Total Return Index from 12/31/1925 — 12/31/2017)
What to expect during an election year
Here are three characteristics to that come through during an election cycle:
Get ready for volatility. Markets will be choppy throughout this year. Since we are at the top of an economic cycle, markets tend to bounce as investors change their minds about the markets before the recession hits. And, markets will bounce around based on election news. Traders will react to presidential proposals and polls, and stock prices will bounce up and down as we approach November.
Brace for the unexpected. As our last presidential election proved, you just can’t tell what will happen next. Do not make big moves in your financial plan based on expectations of how the election will go. Focus your financial plans on reducing risk and building wealth steadily over time.
Expect to hear from your fiduciary financial planner. A recent study found that most investors want to hear about the election and any news that might affect them from financial advisors regularly.
How can a financial advisor help?
If your current financial planner is a fiduciary planner who is always the client’s advocate, you can expect to hear some perspective on election news as the November voting draws closer. It’s in your interest to understand how the candidates could affect you. And it’s in your interest to not overreact to any proposals or speculation about what will come next.
If your current financial planner is not a fiduciary, you might consider talking with a couple CERTIFIED FINANCIAL PLANNER™ professionals.
To find a CFP® professional near you, start your search here. This link will take you to a list of experienced, well-trained, dedicated, financial planning professionals in your area. Meet with a couple to find a person with whom you can connect.
A fiduciary, fee-only, CFP® professional can help you make great financial planning choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.