Elections and Portfolios - Are You Worried?
With the upcoming election, are you worried about your investment portfolio? Do you feel one political party or another has an agenda that will completely decimate your portfolio to a small fraction of what it once was?
Well, you’re probably somewhat normal in feeling that way, but your feelings are likely deceptive on this one. Let’s take a look at the evidence and go from there.
First, it’s always important to remember that our government is made up of three branches: executive, legislative, and judicial. I know we are digging deep into civics class, but the main point here is that we do not live within a system of government where one branch can completely rule the country. There is a balance in power.
Why do I bring this up? It’s because the president is not a dictator who can make sweeping changes that impact everyone and everything. Yes, they can make temporary changes that impact many of us, but they require the legislative branch to make long lasting impacts. As for your portfolio, this means that the president cannot make decisions that dramatically impact all businesses for all time on his or her own. And when you are smart and diversify your investments, it spreads out the temporary risk of them impacting businesses that you own.
Next, it’s important to remember that we invest in companies and not the U.S. government. Companies are nimble and quick to change to the demands and environments around them. Therefore an executive order, rule or regulation that is in place is not an impassable wall for all businesses, but one that has to be temporarily worked with or an opportunity to get innovative. And if they don’t innovate, they fall behind their competitors, which no company truly wants to do.
Finally, I like to show the below picture from Dimensional Fund Advisors who charted the S&P 500 from 1926-2023 with who was president during that time (also republican or democrat). I don’t believe in reading charts to predict the future, but I think most people can see the general trend over the long run. It’s important to remember that you’re accumulating investments over a 30 year period and then using those assets in retirement over another 30 years. That’s 7-15 presidential cycles… just to keep that in perspective.
And this holds true for who controls congress as well, as demonstrated below.
Ultimately, you shouldn’t be too concerned with the election outcome with regard to your investment portfolio. What you should be focused on are the things that you can control and the things that matter with a financial plan that has those two in sight. If that sounds like something you’re lacking, I’d welcome the opportunity to see how I may be able to help!