Post-Election Portfolio Changes

It seems that every four years the same post-election question comes rushing back into investor’s heads: “Now that a particular candidate won or lost, should I change my investment strategy?”

It’s a timely question, given that the president will have the overwhelming task of directing our economic recovery following a global pandemic compounded by political and social division.

The roughly 75-day period between the election and inauguration of a president affords many Americans the chance to evaluate their own situations and potentially adjust accordingly. While the current situation may push us to consider proactively taking immediate action within our own financial lives, there are also steps you can take to prevent political outcomes from affecting your potential long-term financial success.

Revisit Stock Market Performance

As we’ve seen this year, the economy and stock market do not move in lockstep. It may be surprising, but every U.S. president since 1929 has presided over a stock market correction, and most presidents have experienced more severe bear markets. In fact, every president since 1929 has experienced at least one market correction in every one of their presidential terms, except for former President Bill Clinton, who had a close call to a correction (-8.9%) in his first term in office, followed by a near bear market (-19.3%) downturn during his second term. Investors should exercise the discipline to embrace a long-term risk-appropriate profile based on individual goals and objectives, not the present concern or volatility.

Review the Fed’s Role

When a president comes into office, the prevailing economic and market environments undoubtedly alter a president’s legacy, or lack thereof. Economic and market metrics—interest rates, stock market valuations, unemployment, tax rates, inflation and economic growth—are always different. By design, the president has very little direct control over the Federal Reserve (Fed) and monetary policy. When looking back through history, the Fed may have an even more important role in long-term economic conditions than the president.

Evaluate Your Risk

The election result is bound to generate economic volatility, but it is not something that can be “traded” ahead of time without taking substantial risk of getting it wrong. Although it is risky to make investment decisions based purely on the outcome of the election, a change of administration could significantly impact planning strategies.

Partner With a CFP® Professional

Above all, in times of uncertainty and potential for the uncontrollable to happen swiftly, consider focusing on what you can control, such as risk and tax efficiency, by partnering with a CFP® professional. Stay informed and focus on the elements that can be managed within your own circle of influence. Consider getting your financial plan started or updated today.