As the November election dominates the news and conversations across the U.S., our clients often ask, “Should I approach investing differently with the upcoming election?”
In this context, asking how we prepare for an election or potential market fluctuations is akin to planning a cross-country road trip while focusing on local traffic.
While it’s essential to acknowledge volatility to avoid unnecessary setbacks, we believe it’s a natural aspect of long-term investing. Just as traffic slowdowns are inevitable on a long journey, market downturns will occur.
As Dan Lefkovitz from Morningstar pointed out last week, “Investors should remember that markets have thrived, and crashed, under administrations of all stripes.” He also states, “At the end of the day, earnings, cash flows, and valuations drive the performance of financial assets. While policy matters, its investment impact is hard to predict and often overestimated.”
To expand on that latter point, Brian Gardner, chief Washington policy strategist at Stifel said, “There’s always a lag effect between policy and its economic impact and what that means for markets, and so what credit or blame a president should or should not get is not straightforward.”
So, what does that mean for my investments?
While certain policies or administrations can impact specific sectors or lead to short-term volatility, the overall market trend tends to be driven more by economic fundamentals, such as corporate performance, consumer behavior, and global economic condition.
In fact, the inexplicable phenomenon known as the “September Effect,” where September has historically been the weakest month of the year for the U.S. stock market, did not take place this year. Instead, the S&P 500 rose by 2%. These unexpected results are a product of solid financial results (S&P 500 companies’ strong earnings growth) and interest rate cuts (encouraging consumer spending and business investments).
Historically, the stock market has had an average annual return of 9-10% since inception. This means that for long-term investors, stock prices rise over time regardless of which party is in the Oval Office. In other words, the success of your cross-country road trip is not hindered by the Squirrel Hill tunnels (if you’re not from Pittsburgh, forgive my reference).
Bumps should be expected when mapping out your investment strategy—much like planning a road trip. That is why we build a diversified portfolio allocation that is appropriate for your goals and needs.
Three Key Questions for Your Financial Journey
- What are you planning for? Establishing your final destination is the first step in any journey. This mirrors setting your investment goals—whether for retirement, education, or a new
home—and choosing strategies (an appropriate portfolio allocation) to reach them. - Are you doing enough? Life is full of surprises—unforeseen events or market fluctuations. Helping to ensure you have sufficient fuel (income streams and savings) to navigate these detours and account for inflation is crucial.
- Are you being strategic? If you’re traveling from coast to coast, walking isn’t practical. Similarly, while chasing higher returns is tempting, taking unnecessary risks can be counterproductive. Instead, adjust your pace—modifying asset allocations or cash reserves—based on changing market conditions or personal goals. Further, pay attention to gas prices and tolls (tax strategies) to be efficient in your planning.
By approaching your financial planning with this mindset, you help ensure that your portfolios align with your objectives and are ready to handle the journey ahead. Prioritize maintaining adequate liquidity for your short-term needs—like having enough gas for that busy stretch in Pittsburgh.
With careful planning and timely adjustments, you can help reach your destination equipped for both immediate and long-term goals, enjoying the journey despite any inevitable bumps along the way.
Personal Note: A Recent Adventure
Inspired by my own recent fall vacation, I set out with a loose idea and ten days to explore, intending to visit the Great Smoky Mountains. My initial itinerary included visits to various parks and scenic locations, but as often happens, life threw a curveball in the form of Hurricane Helene, leading us to adapt our route.
This experience reinforced the importance of flexibility and strategic planning, just as is necessary when managing investments.
I’d love to share photos or discuss this trip further, especially with clients from those regions!
Original Trip Planned
DAY 1: Pittsburgh → Harpers Ferry National Historic Park, WV
DAY 2: Shenandoah National Park, VA
DAY 3: Cape Charles, VA
DAY 4: Outer Banks, NC
DAY 5: near Boone, NC
DAY 6: Asheville, NC
DAY 7: Asheville, NC
DAY 8: Dandridge, TN – to explore Gatlinburg + Great Smoky Mountains National Park
DAY 9: New River Gorge National Park, WV
DAY 10: New River Gorge National Park, WV
DAY 11: Return trailer to Pittsburgh
Completed Trip
DAY 1: Pittsburgh → Harpers Ferry National Historic Park, WV
DAY 2: Shenandoah National Park, VA
DAY 3: Cape Charles, VA
DAY 4: Cape Charles, VA
DAY 5: Ronda, NC
DAY 6: Ronda, NC
DAY 7: Hillsville, VA
DAY 8: Baron Springs, VA
DAY 9: New River Gorge National Park, WV
DAY 10: Began our trip home early to New Castle, PA
DAY 11: Return trailer to Pittsburgh
Links to Articles Referenced:
The Truth About Election Results and Stock Market Performance | Morningstar
The stock market’s performance under Biden is now better than under Trump. But a big factor is COVID’s toll in 2020. | Morningstar
S&P 500 Average Return and Historical Performance
