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Election-year investing

Doctor and ChildI have committed to my kids to tell the truth when they are facing a painful situation. You have to first get on the level of my kids and see that, right now, a painful situation to them is going to the doctor to get a shot (which, apparently, happens a lot with kids as I’ve discovered.)

So my son and oldest daughter were recently playing an unapproved version of bullfighting in the dining room — which is where you play such games, of course —and my oldest ran smack into a chair. She kept saying “I was the cow and was going too fast and couldn’t stop.” The result was 6 stitches… the day before we left for the beach. If you’re not familiar with caring for stitches, you’re not supposed to submerge them in the water until they heal. That makes for a fun beach experience indeed. My oldest, having never received stitches, asked me through her tears and holding a blood-soaked paper towel to her chin: “Daddy, am I going to get a shot?”

Remember: pain can be temporary

I responded honestly: “Yes, and it’s going to sting, but only for a minute. Then it’s going to feel funny and afterwards you won’t feel it anymore.” This did not soothe her much, but after the paid professional with “doctor” in his title said it, her fear seemed to subside. We all learned something that week. Don’t get stitches before vacation. Don’t be the “cow” in a dining room bullfight. And, that pain can be temporary —quickly forgotten, if one waits it out.

Election-year investing can feel painful

Caution SignA more adult version of this kind of pain occurs when investing in a volatile market — and election-year investing can cause even more apprehension. In fact, many people have asked me about the upcoming election and if they should sit out of the market to avoid this volatility. I’ve been receiving this question ever since I started as a financial advisor, but whenever possible change looms on the horizon — especially in regards to things like tax law, foreign policy, and social policy — I get the question a lot more often. In an election year, it’s unclear who may take office down to the last minute, and this leads to a lot of uncertainty. I think, for 2020 at least, a fair amount of that volatility was sucked into the pandemic vacuum or has been delayed until the actual elections take place — but only time will tell. Usually, after the primaries have run their course and the world looks a little less cloudy, the markets get back to their version of normal.

What to consider for election-year investing

When addressing our concerns about market volatility during election-year investing, we must consider several things.

  • First, much of the news will create a caricatured view of the party opposition. I don’t say that to have a Pollyanna view of the world, but rather a realistic expectation of what the news industry sells. Make sure you can see through the noise.
  • Secondly, consider your investment timeline. Looking at history from 1936 through 2017, if we invested $10,000 in the S&P 500 at the beginning of each election year and held it 10 years each period (19 periods total) that would have resulted in positive gains except for one period. This was 2000- 2009, when the dot-com crash and 2008 global financial crisis straddled those years.
  • Lastly — because changes will happen with either party’s victory in the White House and Senate (and eventually the House) — a proper allocation and ongoing planning is crucial during this time. Whether it’s changes to tax cuts, foreign and social policy, or continued work with the CARES Act — monitoring your plan is crucial. This makes sure you’re invested in areas of opportunity, or de-risking markets that are overheating. This is vital work that should continue well past any election.

PocketwatchTime in the markets > timing the market

I agree that changes on the political stage have their effects on the markets in both the long and short terms, and we should be informed people that champion the causes of freedoms, people, law, business, and economics. But when it comes to our investment portfolios we should focus on time in the markets, not timing the market. Properly allocate and rebalance your investments while contributing to your accounts — and do that often.

My promise is the same to you as it is with my kids: the markets, at times, are not going to be fun. It can be difficult to stay the course, and it might feel painful, especially during an election year. But with proper planning, you can push through — we can get through this together.

September 2020

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

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