As the Election Looms, It’s Time to Forget About Your Stock Portfolio
By: Jon Peters
Tags: Money, Election 2020, Politics, Finance, Investing

As the Election Looms, It’s Time to Forget About Your Stock Portfolio

Investors need to look beyond the winner of next week’s election

There’s never been a presidential election like this before. Amidst a global pandemic, we are now less than one week away from finding out whether Donald Trump has won a second term as president, or whether he’ll be handing the reigns over to former vice-president Joe Biden.

No matter who’s getting your vote on November 3rd, 93% of investors believe that the presidential election will have an impact on the stock market. As election day approaches, investors all over the world are undoubtedly looking at the value of their portfolios in eager anticipation of who the next POTUS will be. But does the market really care who sits in the White House?

History doesn’t think so, at least not in the long run.

Since its inception in the 1920s, the S&P 500 has returned an annualized average of 10% per year, through a range of political scenarios and global events, regardless of which political party has been in power. This would indicate that, although there may be fluctuations in the market around election day, these will have a negligible effect on your investment returns in the long run.

So what’s an investor to do?

For most people, the answer is pretty simple. If you have a long-term horizon, the best thing you can do is leave your portfolio the hell alone.

Humans love to take action, to do something, it’s in our nature. But if you’re following an investing strategy that’s working for you, tinkering with your portfolio based on whose ass is sitting in the Oval Office is probably the worst action you can take.

In fact, history shows that fleeing the stock market on the back of an election is a good way to miss out on returns. The S&P 500 gained 26% in 2009 after Barack Obama was elected and 22% in 2017 following the election of Donald Trump.

But what about my individual stock picks?

If you’re picking individual stocks for your portfolio, then you likely did a lot of homework and bought companies with solid balance sheets, good management, and good long-term prospects.

Take Apple for example. My stock holding in Apple is down 11% since I bought it. With the election coming up, it might drop even further. Does that mean that Apple is a bad company and that I should sell? Of course not.

Now if either of the candidates passes an executive order making it illegal to buy an iPhone, I’ll probably reconsider my position. I know you’re laughing, but look at what happened to TikTok. Obviously, I’m using this example to make a point — that you should only look to amend your investments if you believe that the long-term outlook for the companies you own has changed irreversibly, or if you think you’re able to achieve greater returns by investing your money elsewhere.

Final Thoughts

The S&P 500 has been on an epic run since its low at the end of March 2020 when the coronavirus pandemic shocked the world. If that doesn’t demonstrate the irrationality of the market, nothing will.

The only thing easier than making money in the stock market is losing money in the stock market. Investing is simple, yet we insist on complicating it by making investment decisions based on things which — in the long run — will have little impact on our returns.

Go out and vote this November. But vote with your ballot, not your portfolio. Leave it the hell alone.

The views contained in this article are my personal opinion and should not be considered financial advice.