How to Invest During an Election Year
by Robert W. Tull | October 1, 2020 | Financial Planning
Robin: Hi Robin Tull with Tull Financial Group for this Financial Friday. I’m here with Ellen Anderson, our Director of Investments and we just want to talk a little bit about some of the questions that we’re getting. The first topic we want to discuss is about a recent piece I wrote about
disruption. When you think of disruptors in the world you think of things that we’ve gone through like 9/11, the Great Recession, things like that that you didn’t expect. One of the questions that we’re getting now is “Is the election coming up a disruptor?”
Really it isn’t because we know that it comes every four years, but the questions are coming in so a few weeks ago I went into Ellen’s office and I said hey, let’s do some research on past elections and see what other sources are saying. Ellen, what came out of that research with JP Morgan and Blackrock?
Ellen: We look to see what does history tell us? What we found and we’ll show some graphics on the slides, is stocks have continued higher regardless of presidential party, so that means whether it’s the blue party or the red party – the US stock market has continued higher.
The corporations adapt, they adapt to policy change and they adapt to economic change. The other thing we saw was in election years, historically volatility has been higher and returns have been lower but what contributes to that is there’s all of these election years that had dramatic economic events.
So you had in 2008 the Great Recession, in 2000 the technology bubble burst so that kind of skews returns and this year looking forward we had a pandemic and a recession.
Robin: What’s interesting is when you look at investing the thing that we always share is you set your asset allocation prior to any disruption or prior to any event that way you don’t say “I have to get out I can’t handle this.” People are asking the question, “should I sit on the sideline for a little while?” What’s the best response for that kind of question?
Ellen: It’s tough because every investor is different. It depends on your comfort level, but we advise – and what I have heard you advise clients on – is to stay long term focused. If you believe in the American economy and the global economy, which we do, you have to let that drive your long-term focus, as that drives long term results. That should drive your long-term asset allocation as well. We don’t know when to get back in the market.
Robin: I see issues often with timing, we sometimes use the principle of a lifeguard at a pool. You may pick a good time to get out of the pool (get out of the market) but the difficulty is that second decision, when to get back in. So many people miss out, that can be 2%, 5% or more, and it can really affect your long-term performance.
Those are the things that we look at. What we always try to say is whoever is in office we’re going to work to make money and minimize the losses from that standpoint. That’s a good principle to have and just say okay, 12 months from now do we expect the market to be higher? Yes, we do – especially coming out of a recovery.
I hope this is helpful as it relates to the election coming up. Please call us at (757) 436-1122 or email us if you’re seeking financial advice or would like us to cover any other topic. Have a great day.