It's Your Money  

Portfolio safe after election

I’ve been putting off writing about the U.S. election, but don’t think it’s fair to do so any longer.

Just like four years ago, the single most common question I hear from readers is how the U.S. election will affect their portfolios. I figure I should share the comments I give to them with you as well.

The short answer?  It really doesn’t matter who wins. Before you start getting all fired up with your reasons why I’m wrong this time, let me explain…        

History has firmly proven that presidential politics have very little impact on your portfolios. Any sitting president has to negotiate with the House of Representatives and the Senate to make changes, and there are a whole lot of check-stops in place to prevent a bunch of drastic changes right out of the gate. 

So why are markets often volatile during elections? It comes down to emotions, and this can be costly. 

Everybody has a bias and roughly half of the U.S. citizens feel strongly one way or the other with who should be in power. They assume that if the party that they don’t like wins, it will mean absolute disaster for this sector or that part of the economy.

The market doesn’t happen to care if you hate the current or incoming president. 

In 2008, a lot of people assumed that if Barrack Obama won, it would put gunmakers out of business, dump health stocks to new lows and be a huge win for alternative energy stocks.

How did that turn out?

Smith & Wesson, one of the largest gun manufacturers in the world, saw its stock climb 912% in the last five years of Obama's term.

The U.S. Health Care index (Dow Jones) grew by 140% during the same time.

How about clean energy? As a whole, that sector dropped roughly -50% under Obama’s administration. 

Now, let’s look at the last four years.

One famous investor firmly stated that the bond market will collapse if Trump wins, but I don’t recall that happening so far. Billionaire Mark Cuban famously stated that “there was no doubt that the markets will fail if Donald Trump was elected.”

But that one didn’t happen either.

But what about a disputed election?

Again, the risks are overstated and any market turbulence will be short-lived. The U.S. electoral system is designed to force a result within six weeks and U.S. institutions have proven they can handle assassination, resignation and impeachment of past presidents.

The point is you really need to avoid letting your personal biases and beliefs get in the way of your portfolio decisions. Personal emotions further fuelled by famous investors and prominent media personalities presenting their personal beliefs as facts is no way to build an investment thesis.

So what should you do?

Don’t change a thing and stick with your well thought out and properly diversified investment plan. Ignore any investment advice that starts with “If Trump wins” or “If Biden wins” and go outside and enjoy the nice fall weather instead. 

Once the circus of Nov. 3 has passed, and regardless of who wins, things will carry on like they’ve done before, and the markets will continue to grow. 


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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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