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What Should I do With My Investments In Advance of the Election?

What Should I do With My Investments In Advance of the Election?

September 08, 2020

Well, of course, this is one of those questions that depends. Most everything in financial planning depends on your particular situation and your overall goals.

One thing is for sure, over the next few weeks leading up to November, we will all hear a lot about the coming election. And there will be no end to the speculation about what could happen and what it might mean.

This is a great time to carefully think about your spending needs over the coming months. What will you need buy during the next year? I often recommend that my clients keep cash reserves to cover necessary spending needs for six months or a year. Cash will give you choices and you will not need to sell investments at a bad time.

A Few Things Are Generally True

There will be more speculation and conjecture than objective fact. Our modern broadcast and social media are NOT in the business of providing objective information. They thrive on engagement and entertainment. Exciting possibilities are much more valuable to the media than quality information. Do not overreact to information in the media. Work hard to find multiple sources and objective information.

Investment markets mostly don’t care. Historically, the investment markets have performed mostly the same under democratic and under republican presidents. The chart below illustrates the performance of markets under democrats, republicans and with divided government. There is no clear trend.

Generally, markets hate the run-up to voting and love the result. Generally, markets are more volatile prior to election day. Often with a modest decline in values. Then, when the election result is known – regardless of the outcome – markets tend to rise thanks to the “clarity” that comes from a known outcome. Markets hate uncertainty.

A Look at Market Returns Before and After Elections

Real (inflation-adjusted) Price Return in select periods around U.S. Federal Elections, 1948-2016

Market returns before and after election

Currently, a Few Things Are Pretty Likely

  • Management of the COVID-19 pandemic is the most important factor affecting overall economic performance. Until we have control of the epidemic, we cannot have a healthy and fully functional economy. This is true regardless of who is president in 2021.
  • Taxes are more likely to rise than to fall. Government spending in response to the pandemic has increase deficits to record levels. Regardless of who is president, there is very little likely hood of a big tax cut.
  • Huge tax increases are not likely. Even if Democrats win the election, recovery in the economy will be a high priority. It’s pretty unlikely that we would see significant tax increases that might blunt an economic recovery.

In summary, expect more volatility and lower market values prior to the election. Probably less volatility and better market performance after election day. There is plenty of uncertainty in the markets right now, and the Corona virus is a huge variable.

This is one reason I advocate that clients strategically spread investments among a variety of investment categories. We strive to own 10-14 types of investments in most client accounts.

  • Companies of different size.
  • Companies serving different segments of the economy.
  • Companies based in different parts of the world.
  • Investments that use hedging and options strategies to reduce volatility.

With the election approaching, there are plenty of reasons to talk with a well-trained, experienced, fiduciary financial planner to help you evaluate your priorities and next steps. I always suggest a great place to start looking for the right advisor is to talk with a couple CERTIFIED FINANCIAL PLANNER™ professionals.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you make great retirement income 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 rdunn@dunncreekadvisors.com. 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.