Last Sunday morning, my husband and I took advantage of the unseasonably warm weather outside and went for a walk in our neighborhood. As we headed back home, a car pulled up beside us and rolled down the window. It was a client, stopping to say hello on her way to a friend’s house. “I almost called you on Wednesday to go over my finances. I wanted to see if I could afford to live overseas for a while if Trump were reelected, but I can breathe now,” she said as she pulled away. When we reached home, I checked my email, and read a question from another client. “Is there anything that needs to be done to my accounts to guard against potential losses caused from this moron being elected?”
These reactions are a good representation of the results we saw across the country, with each side expressing strong feelings and concerns. Even in presidential races without the added complications and stresses caused by COVID-19, there is always a wave of worry about what will change, how the investment markets will be affected, and what it might mean to our lives.
In the months leading up to this election there have been countless articles written about what might happen and who would benefit if a blue wave combination of Democratic president and Congress came to pass, or if Trump were to return for another term, and what specific industries would benefit. As polling in key states shifted direction as the election drew closer, stock prices rose and fell in different sectors of the market, as investors shifted into investments they believed would be favored under these circumstances. And the guessing and projecting continues.
After 32 years as a financial advisor and 8 presidential elections in the rear-view mirror, there are a few observations I can provide:
Change rarely comes as quickly as we think it will.
President Bill Clinton campaigned heavily on health care in the 1992 presidential race. Leading up to the election there were countless articles written about how drug and health insurance companies would benefit, and I received lots of questions about shifting portfolios into health care focused funds.
Two months after he took office in 1993, he created the Task Force on National Health Care Reform, chaired by First Lady Hillary Clinton, to come up with a universal health care plan that would provide insurance coverage regardless of employment and pre-existing conditions. Despite a Democratic controlled Congress, the initiative failed due to a variety of political and legal reasons. The complexity of the Task Force proposal was used in the 1994 mid-term elections as an example of big government run amok, and the House and Senate were both flipped to a Republican majority as a result. Comprehensive health care reform wasn’t considered again until 2008.
Changes in tax, environmental and other policies may come with a change in administrations, but even when the executive and legislative branches of government are controlled by the same party, change is usually slow, and we have time to adjust.
Politics have an impact on markets, but not as much as we might think.
As we’ve pointed out in prior blogs, U.S. equity returns under past presidential terms have been positive after excluding the beginning of the Great Depression under Hoover, Nixon’s resignation and the financial crisis that began in 2008 as George W. Bush spent his final year in office. And significant drops in the market were more about economic issues that came from factors like overextended lending practices and the lack of securities laws – not political policies.
Whether we feel we are on the winning or losing side in a presidential election, after the initial market euphoria caused by relief that comes with clarity, investors and the markets get back to reviewing all information available, not just who is in the Oval Office, and factoring that information into their daily investment decisions.
Once companies know the new rules, they adapt, and move on.
Over the last four years taxes were reduced and many regulations were eliminated, which has historically been a great environment for business expansion. But those changes came with other unexpected shifts in policy.
The Wall Street Journal posted interviews with CEOs across the United States on Sunday, and the general consensus was they expect more predictability from the White House over the next four years. “It’s going to be easier because it is going to be more stable,” said Peter Anthony, CEO of UGN Inc., an auto-parts supplier with about 2,200 employees based outside Chicago, who added that he sees Mr. Biden as a centrist. “Business leaders are going to know what they’re going to get when they meet with him. If you know the rules of the game, you can play the game.”
Knowing what you can expect, and being able to plan and adjust for it, can be easier even if you don’t agree with the policy of the political party. At least you can plan and make decisions with greater confidence.
It’s better to focus on your own personal financial plan than politics.
The most important factor in our own financial success or failure is our own actions. Saving for expenses we know we must meet as our kids approach college age and we face retirement. Tracking our spending against our plans, holding a well-diversified, low cost investment portfolio, and making small adjustments over time before they become big problems. These are the boring but solid actions that keep us financially stable and secure, regardless of who is in the White House.