Don't Let Election Volatility Compromise Your Market Faith
Grounded Wealth Management opens its doors
Let me start off by acknowledging the love and support of so many people. I’ve never felt more encouraged about the folks that have kept their faith in us. I'm excited by what we can accomplish together at GWM!
From my family to yours, thank you. Now, let's get started...
It’s an election year
Election years are interesting for the market. Not surprisingly, I’ve heard a lot of takes from clients about the election and especially, “the disaster it will be if (insert) candidate wins.”
After some modest client ranting I usually get asked, “what does the election mean for my money?”
If you’ve worked with me for a while, you know my refrain. Presidential elections come every four years like clockwork. After the results are tallied, half the country will be disappointed, half the country will be ecstatic, and the companies you are investing in will react accordingly. These large companies have plenty of resources to lobby on behalf of their interests no matter which party is in charge.
This Dimensional one-pager depicts this concept beautifully. Unless you are unlucky, depression-era Herbert Hoover, or George W. Bush towards the end of his term, the market has advanced under every political regime. It seems unlikely that this will turn out much differently in the long run.
However, I agree with some pundits that suggest market volatility can pick up in the lead-up to the election. LPL Research has a splendid piece on this:
“As a result of some of the potential policy differences, we believe there could be likely market 'winners and losers,' depending who stands as president in 2025.
Rather than focusing on predicting the winners, we believe protecting against likely volatility is the best investment advice one can give at this juncture, and keep a well balanced, diversified portfolio. We would reserve any other investment judgement until after the election results have been formally tabulated.”
Who trusts polls nowadays?
Over the last decade polling data companies are struggling to prove their value as the sample of individuals they get to take part in their surveys aren't always that representative of who really votes.
If you’d like an alternative to polling data try election betting lines. To see real-time shifts in the likeliness to win, I’d put my faith in the line setters in Vegas over the polling companies. As opposed to polling companies, new information leads to much faster odds updates. Also, Vegas odds do not suffer from the effects of bias.
For what it's worth, at the time of writing Harris sits as the favorite at -102 odds (bet $102 to win $100) and Trump is the underdog at +110 (bet $100 to win $110).
Slimmon strikes again
I’ve taken particular liking to the mind-set of portfolio manager Andrew Slimmon. He runs the Applied US Core Equity Strategy Fund at Morgan Stanley. He often puts out investment insights I find amusing and relevant. His opening line to his most recent article states,
“Sometimes the best thing to do is be patient. I think we are in one of those periods.”
The market hitting all-time highs in a historically poor month for stocks (September) in an election year is... weird.
Given this, Andrew expects a pickup in market volatility. He believes we are at the time in the election cycle where each candidate is promising everything to everyone, and voters are quite pleased with being promised the moon. However, as crunch time comes, the anxiety, fear, and election potentialities will become much clearer and real.
After making his point, he lays out what I think is the biggest determinate of sustained investment success. Behavior. The reason investors can accumulate excess returns on investments is because they have learned better and don't suffer from making investment errors.
They don’t panic sell in fear. Instead, they clamor to buy quality companies at steep discounts to their value when the going gets tough. The most successful investors run INTO the burning building.
Also, they don’t FOMO buy in greed. Instead, they let others have FOMO and stay away from over-valued, get-rich-quick trends.
That is to say, the mark of a successful investor is patience, courage, and poise. Fear and greed are not an investor’s friend. Yet, they are undeniabliy a shared part of our human condition.
To be prudent investors, let’s do our best to see/acknowledge these emotions when they come and then let them pass like the wind. After all, we may have the opportunity for a lot of practice in the upcoming months.
If we can help you sort out how to plan your financial future, and provide guidance on what investments to use/avoid, please contact us by submitting a request on our home page.