Presidents, Politics & Portfolios
In recent weeks, I’ve been getting a lot of questions about the coming presidential election and its potential impact on the stock market. I’m not here to talk politics specifically, or to take sides, but people of both parties have told me that they are either going to wait to invest until after the election, or sell all the investments they currently own, and wait it out, in cash. Their logic is usually that the market is going to plummet after Biden is elected, or after Trump is re-elected. Their plan is that they will get back in later on. Well, I feel obligated to tell you—that’s a terrible plan. Unless you see some trend in this chart that I’m not picking up (notice the presidents and their parties at the bottom):
S&P 500 index, with presidents and their parties overlaid, 1928-present. Click here for .pdf version.
What I’ve observed in my career is that, if someone gets out of the market because they are concerned about the crisis of the day—in this case their candidate losing—they’re darn sure not going to have the stomach to get back in after it has fallen 10, 20, or 30%. They will wait, and wait, and wait. Then, they might start to consider getting back in, after the market has risen substantially—well beyond where they sold. Ultimately, they will either remain on the sidelines, in cash, indefinitely (filled with regret from having missed the boat) or finally buy in again, at much more expensive levels than where they sold. Then usually, when the next hiccup in the market comes, due to the new crisis of the day, they will think “I knew it!” —and sell everything again. Wash, rinse, repeat…until you’re broke.
On the other hand, if the crisis that was initially feared, doesn’t happen at all, and the long-term positive-sloping trend of the stock market continues, they will again be left waiting for an opportunity to get back in (when the market is lower) which may never come. If it does come, the chances they’ll rush to catch what they perceive to be a “falling knife” are small, for reasons already mentioned.
I know, I know, someone reading this is about to say: “I’ve done it before” or “I know someone who has done it”. Okay. People get lucky. But, no one can consistently “time” the market. No one. People will only tell you about the times they got it right.
And someone else reading this is probably thinking, “But this time is different”. No. It’s not. This time is NEVER different. That “other” candidate isn’t going to single-handedly destroy America, no matter how much you dislike him. I’ve heard this during previous elections, and much older advisors tell me they’ve been hearing this for decades. If this time IS different and whatever crisis you’re concerned about does result in the end of the world or America, your investment portfolio won’t matter much, will it? But, neither will your cash! So let’s go with the assumption that the world will continue.
But, will the market go down after the election? I have no idea. It might. Then again it might not. But that’s not exactly the right question. If we’ve learned anything from this year, it’s that the market moves very violently at times. And no one can predict exactly when it will move up or down. But we know from examining history what the long-term trend looks like. (Take a look at that chart above one more time.) So, the right questions really are: “If I stay invested, and ride out the ups and downs, how will it affect me and my long-term plans?” or “How will I possibly be okay if that happens?” That’s what you actually want to know, right?
So, if you are really concerned—there is one thing to do. You need to find someone to help you. If you have a financial advisor, and he or she has allowed you to succumb to fear and sell out—you need a new one. Worse yet, if your advisor has led you to believe they can make “tactical moves” (a fancy word for market timing) and it hasn’t worked out—again, you need someone else. Or, if you don’t have one at all, find one today.
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Required disclosure: The opinions voiced are for general information only and are 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.