With the election just days away, there are many questions to be answered. One being â€“ will the outcome of the election, or the election itself, will have an influence on stock market performance and their portfolio?
With the election just days away, there are many questions to be answered. Of these topics, one that comes to mind for many investors is — will the outcome of the election, or the election itself, will have an influence on stock market performance and their portfolio?
Before I jump into my take on this question, I think it’s important to remember the primary objective of mainstream media, and that is to attract and retain viewership. Simply put, more viewers will watch a segment titled “Election results could wreak havoc on your portfolio” than “In the long-term, all will be well, stay the course.” One headline makes the viewer inclined to sit through the ads for the next segment, and the latter lets you know you are free to change the channel.
With that thought at the forefront, the short answer to the initial question is “yes” — as capital markets tend to dislike uncertainty in any form during the short-term. Empirically speaking, a recent study by Vanguard, shows that equity market volatility spikes 100 days prior to an election and subsides significantly in the following 100 days after election results are finalized.
In the short-term, the financial media can help perpetuate investor discomfort; however, in the long-term, capital market performance has little to do with who is in office. In fact, in the same Vanguard study, they find there is almost no difference in stock market return based on the political party in office. What actually drives stock market return in the long run are more robust factors such as company earnings, profitability, and a multitude of other economic factors. Benjamin Graham, who is considered to be the father of value investing, put this concept very simply, “In the short term, the market is a voting machine, but in the long-term it is a weighting machine.”
So what is an investor to do? For the long-term investor, the sound advice is almost always to stay the course unless their goals or circumstances have changed. Large portfolio changes should be dictated by changes with the investor and not based on speculation of potential market changes in the short-term. Timing the market is almost always a loser’s game, and while it may be possible to get it right occasionally, history shows us that staying the course is where the astute investors make their money.
As Election Day approaches and the media hype intensifies, keep the above points in mind and consider if there have been any significant changes to your goals or circumstances. If the answer to the question is “no,” there is a lot of historical evidence to stay the course and tune out the political noise.
Michael D. Paulus, CFP®, CLU®, ChFC® is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. but is independently owned and operated.Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as tax, specific loan repayment for an individual or legal advice. This is not a recommendation of any strategy or product in particular. 1627550/DOFU 10-2016This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.