Stick to your plan
As we prepare to enter the final weeks of the 2020 election cycle, we fully expect the financial and political airwaves to be full of dire warnings. Depending on your point of view, you might be tempted to wonder, “Will Trump be re-elected and lead the country into continued chaos or will Joe Biden defeat him, leading to socialism on a grand scale?” You may be utterly convinced that either one of these results will cause enormous damage to the economy and markets, but we’re confident that will not be the case in either instance.
Unfortunately, an election-triggered apocalypse is a standard meme circulated every four years. It seems that supporters of both candidates and parties are certain that a victory by the opposing side will result in a catastrophe of epic proportions. Rhetoric and fear will be no different in 2020 and with our charged political atmosphere and a raging social media universe, it could possibly be worse. If you are worried about the economic consequences of your party losing the election, you are not alone. Take a look at the following chart from JP Morgan, which shows the percentage of Republicans and Democrats who have rated the country’s economic condition as either excellent or good from 2000 through 2020. If you notice, both parties thought conditions were better when their respective party was in the White House and worse when the President represented the other party. Don’t forget, the economic conditions being rated are exactly the same. Once again, perception becomes reality.
Our advice is to try your best to tune out current events and stay focused on your well-thought-out plans. No president or government can force the businesses in the S&P 500 to lose money (and value) for an extended length of time. Companies will simply stop doing whatever is causing them to lose money and either redeploy their capital reserves into money making businesses or return them to their shareholders. Returns and volatility are driven by market and economic conditions, not elections. That is not to say there won’t be volatility around the coming election, but it doesn’t warrant portfolio changes. Make sure to maintain a well-diversified allocation; timing the market is a very difficult strategy and particularly so during an election. Your time horizon is much longer than an election cycle or a presidential term, so stick with your plan. Historically, over the long term, markets have moved higher no matter who is in charge.
Politicians and policy makers do not radically re-engineer the U.S. economy. Legislative accomplishments, let alone legislative proposals, happen infrequently at best and they don’t always turn out the way the experts expect. The world economy is a giant mass of competing interests, and one of its most powerful traits is the ability to continue to progress. Despite what we do to try and influence it, it will continue to create value, jobs, profits and innovations. The economy may stumble from time to time, but it marches stubbornly and steadily onward. If you have a long-term view, that is where to place your bets and let them ride.
Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.