Commentary: The presidential election and your portfolio: What you need to know before Election Day
If you're anything like us, you're probably exhausted from the 24/7 spectacle that is the presidential election. Now, with Election Day just days away, we're finally on the cusp of being able watch TV without being bombarded with political advert...
If you're anything like us, you're probably exhausted from the 24/7 spectacle that is the presidential election.
Now, with Election Day just days away, we're finally on the cusp of being able watch TV without being bombarded with political advertisements for a change. As the campaign season has progressed, we've seen a significant uptick in the number of questions surrounding the potential implications of the election, and we're guessing you've got questions, too. With that in mind, there are three things that we wanted to share with you to hopefully assuage your concerns about the upcoming election.
Don't Try Timing the Markets Based on Tuesday's Results
There was a recent study that found that when there's a newly elected Republican, the markets tend to do exceptionally in the year of the election. When there's a newly elected Democrat, markets tend to boom during the inauguration year.
That doesn't mean, however, that you should make allocation decisions based on the election's results. Remember, when looking at post-election data, we're dealing with a relatively small sample size which can easily skew numbers. When you're working with a small dataset, its value as a predictive tool is diminished. And even if we were working with a robust set of data, those past results aren't predictive of what will happen after this year's election.
We like to say "time in the market, not timing the market." By that we mean it's important
for investors to stay invested for the long term rather than trying to time the market based on short-term news. Trying to time the market is a nearly impossible task, even for the most sophisticated investors. Making a move solely based on what happens on Tuesday is more likely to reduce your long-term returns rather than enhance them.
Current Debt Levels Are High, but Manageable
Perhaps the most frequent policy-themed question we're asked about is the debt and deficit. The terms debt and deficit get thrown together a lot, but it's important to remember that they refer to different things. In overly simplistic terms, the deficit is the shortfall between government outlays (spending) and revenue (taxes). This year, the deficit should be about $550 billion. The debt is the total amount of money the U.S. government owes and is currently over $19 trillion at the time of writing.
These are both large numbers-the debt is almost incomprehensibly massive-and while the raw numbers are staggering, the more important number to look at is how quickly our debt obligations are growing. During the height of the Great Recession, large-scale emergency spending was utilized by Congress and the president to help stimulate the economy, thereby causing debt-to-GDP ratios to increase dramatically. In recent years, thanks in part to spending being curbed and steady economic growth, the rise in the debt as a percentage of GDP has slowed.
That said, debt levels are probably higher than we would like to see them. We believe that U.S. debt levels are something you should be aware of, but not necessarily something that
you should base your investment decisions on.
One final word of advice: Stay calm. Presidential candidates are trying to provoke an emotional response to try to win your vote. The media by and large covers the election in an emotional manner to garner your attention. Political pundits en masse are saying that if a certain candidate wins, we will inevitably head to economic ruin. It's easy to get sucked into these emotions and allow them to dictate the types of decisions you make.
We would advise you to not make a kneejerk decision based on who wins the presidency or which party controls Congress. If you decide it's in your best interest to pull some of your money out of the stock market, that decision should be made based on your goals and values, not because you don't like the results of the election. If your plan is to stay invested for the long term, we think that will continue to be a prudent course of action, regardless of what happens on Nov. 8.
And whether you're voting for Secretary Clinton, Mr. Trump or for a third party candidate,
make sure you vote on Tuesday.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of "Your Money" on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at email@example.com . Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.