Skip to content

AARP Members Enjoy Exclusive Discounts on Travel, Dining and More. Join Today

 

Investing During the Presidential Campaign

Stick with your long-term plan and ignore the crystal ball

Investing during this crazy presidential election

Istock

The results of the 2016 Presidential campaign may not affect your investment strategy as much as you think.

I'm no political columnist. Yet even with my lack of expertise on the subject, it's clear that this presidential election cycle has thrown more than a few curveballs. Depending on who wins, things could be very different in a year or two.

Get money and investment savings tips in the AARP Money Newsletter

For example, this calculator from the Tax Policy Center lets users see how different their taxes would be under each presidential candidate — if they were able to get their tax policies through Congress, that is. Foreign trade agreements that might be passed, and the subsequent impact on jobs, can have a significant impact on the economy as well.

So when it seems like there are only wild cards in the deck, I am frequently asked: What to do now and what to do after the election? My answer: Stay the course and change nothing.

To help you feel better about that suggestion, it's important to bust a couple of myths. One is that the stock market does better under Republicans than Democrats — a myth, unsurprisingly, I often hear from Republicans.

According to a CNN article, since 1945 the Standard & Poor's 500 has gained an average of 6.7 percent annually during Republican presidencies versus a 9.7 percent gain with Democratic presidents.

See also: The Case for Owning International Stocks

I also hear Democrats saying this data proves they are better for the stock market, and that's a myth as well.

These numbers do not establish cause and effect. Much of the differential can be attributed to poor stock performance during the previous president and strong performance with the current one.

Two reasons to stay the course

First, though I acknowledge that politicians can be good or bad for the economy, I also believe that capitalism is a far more powerful force. Incentives to create new products and services that fuel jobs will remain intact no matter who wins this bizarre election. The stock market will survive.

Second, even if the winning candidate does have a negative impact on stocks, I'd still do nothing. And the reason I'd do nothing is because that impact would already have been priced in to the market.

The future is a slippery, ever-changing target that is far harder to predict than we imagine, even for the experts. One only has to look at this election campaign to see my point, as I don't know of any expert who has been accurate in predicting it so far.

To make changes to your portfolio while thinking you not only know the future, but also the impact the new president will have on the stock market, is not something I would recommend.

So I'm keeping my own portfolio balanced with low-cost diversified stock and bond funds, along with CDs. That alone helps me hedge against this political uncertainty.

Allan Roth is the founder of Wealth Logic, an hourly based financial planning firm in Colorado Springs, Colo. He has taught investing and finance at universities and written for Money magazine, the Wall Street Journal and others. His contributions aren't meant to convey specific investment advice.

Join the Discussion

0 | Add Yours

Please leave your comment below.

You must be logged in to leave a comment.

Next Article

Read This