Presidential elections and investing: What I tell clients

Campaign signs in support of Joe Biden, 2020 Democratic presidential nominee, and U.S. President Donald Trump in Pittsburgh, Pennsylvania, U.S., on Sunday, Nov. 1, 2020. After striding into the 2020 election year with a white-hot economy and beating Democratic efforts to remove him from office, Trump was ready to cruise to a second term. But then came the coronavirus pandemic and economic devastation. Photographer: Al Drago/Bloomberg
Campaign signs in support of Joe Biden, 2020 Democratic presidential nominee, and President Donald Trump in Pittsburgh on Sunday, Nov. 1, 2020.
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It’s almost over (thank goodness)! Hopefully, within a few days, we will know who’s going to be parked in the White House for the next four years. I imagine, like me, some of your clients are asking what they should do depending upon who wins the election.

I try very hard not to engage a client in politics. When a client says something like “Holy cow, I’m going to sell all of my stocks if that idiot (circle one – Biden / Trump) wins,” I remind them of some costly mistakes made in the past.

For example, I had clients who absolutely hated Obama. They made a costly bet against America by getting out of U.S. stocks and moved to gold and emerging markets. They believed the logic was sound as they were investing in rapidly growing markets in countries not bogged down by huge amounts of debt. And gold was a no-brainer, they thought, as fiat currency would be worthless.

Others came to me after Trump was elected. They also sold U.S. stocks and went to cash and international stocks as well. They made an equally costly bet against America.

I expect this election to be no different. So when the calls come in, I’ll point out a comparison of the stock market under Trump and Obama. Through the first three years of Trump’s presidency, markets produced a 52.2% total return for U.S. stocks. Obama’s first three years were even better with a 78.6% total return. And U.S. stocks outpaced international by roughly the same amount under the first three years of each president. So getting out of U.S. stocks was a huge mistake under both presidents.

Looking back further, according to one analysis, from 1926 through 2019, the S&P 500 produced an attractive average annual return of 9.12% under a Republican presidency. Under a Democratic presidency, the result was even better with a 14.94% return. While the difference is large, it likely isn’t statistically significant.

But this presidential election cycle has had more than a few bad surprises from COVID to social unrest to the most politically dysfunctional political climate in my lifetime. Depending upon who wins, things could be very different in a year or two. Biden is proposing some tax changes summarized by the Tax Policy Center. What foreign trade laws will be passed and what the impact on jobs will be remains to be seen. The impact on the economy could be huge.

I personally will be advising my clients to stick to their plan for two reasons. 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 which fuel jobs will remain intact no matter who wins this bizarre election. The stock market will survive.

Second, even if a Trump or Biden win does make it bad for stocks, I’d still do nothing because that would have already been priced into the market. The same goes for what sectors might be better.

My take is that predicting the future is way above anyone’s pay grade. Making changes to a portfolio with the assumption that we know the future or the impact the new president will have on the stock market is not something I recommend.

As I do in presidential election years and all the other years between, I’ll be advising clients to stick to their balanced portfolio allocation strategy of low-cost diversified stock and high-quality bond funds, along with CDs. As the late Vanguard founder John C. Bogle said many times: “Stay the course!”

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Election 2020 Investment strategies Donald Trump Joe Biden Portfolio management