A number of our clients have asked us our opinion about this year’s election. The conversation normally goes something like this:
Client: “I have never been more concerned about the future of this country. Both presidential candidates seem to be so polarizing and let’s face it, Washington is completely dysfunctional.”
Beacon: “It is disappointing that there doesn’t seem to be a middle ground on any issue.”
Client: “How are you going to adjust our portfolio when Trump or Clinton is elected? Should we exit the stock market now and wait until after the election to re-enter the market?”
Beacon: “We don’t plan on making adjustments to your investment accounts, unless something has fundamentally changed in your personal situation. Besides, what if the market is higher after the election, would you still want to buy back in?”
Client: “Maybe, it just depends on the direction of the economy at that point.”
Beacon: “What if the market has declined by 10% immediately following the election, will you feel good about entering a declining stock market after a sudden correction? Especially given the uncertainty surrounding an unproven President?”
Client: “Probably not.”
The bottom line is that making portfolio adjustments in response to your perception of the political climate has never been a productive long term strategy for successful investors. The chart below shows the direction of the S&P 500 Index since 1926. You will note that the trend has been upward regardless of the political affiliation of the President of the United States.
Exhibit 1: Growth of a Dollar Invested in the S&P 500, January 1926 – June 2016
In addition to the political affiliation of the President, it is also important to consider all of the events that have happened within the U.S. over this extended time period. There have been world wars, assassinations, civil unrest and enormous uncertainty. Nevertheless, the economy has grown over those periods of unrest.
At the end of the day, we believe that successful long-term investing means making investment decisions based on your own financial plan, irregardless of the “noise” of politics. Ultimately, those who have been long term investors have benefited tremendously for their resolve and our expectation is for that trend to continue.