Fall 2020 Quarterly Newsletter
Author: Carl “Bud” Hedstrom, CLU®
As we find ourselves on the doorstep of the presidential election we are faced with a death toll from COVID-19 that has exceeded 200,000, a high percentage of unemployment and the federal deficit for the current fiscal year is the highest since World War II as a percentage of GDP. This has created an abundance of both social and economic turbulence.
We are bombarded with thoughts of political uncertainty and in turn, many clients are asking how they should respond in their portfolios. The short answer is that an investor should not take any action without first taking the time to revisit their financial plan and consider their long-term goals.
Here are three things to consider:
1. Many changes have taken place in 2020, but have you changed your goals? Are there reasons why changes would be necessary? One of the best ways to calm your fears during times of market volatility and political uncertainty is to stick to your financial plan. This will increase your probability of surviving corrections instead of trying to time the market. Investors sometimes make the wrong decisions not because they are uninformed, but because they allow emotions or intuition to influence their reasoning.
2. We may not know election results for a while due to mail voting complications and delays. Some forecasters claim that it may be days or even weeks before the outcome is known. With such uncertainty at play, volatility will likely increase. If that does end up being the case, it’s critical to remember to not overreact and stay the course.
3. It’s interesting that election outcomes dating back to 1928, when the S&P 500 has risen in the three months before an election, the incumbent usually wins the White House. When it has fallen, the incumbent has usually lost. This pattern has had an 87% success rate and has been correct since 1980.
Whatever the outcome of this election, remember to stay focused on the fundamentals because they help you weather the market regardless of how it responds. If you have a sound financial plan, it should give you the strength to avoid the temptation to make big portfolio changes. The Schwab Center for Financial Research has data going back to 1928, which says the S&P 500 Index has ended positive 17 of the past 23 presidential election years or 74% of the time with an average annual return of 7.1%. What does all this amount to for us? Well, we can find some patterns. However, as always, past performance is no guarantee of future results. Stick with your diversified portfolio and focus on your long-term goals.
This article was featured in our Fall 2020 Quarterly Newsletter available here:Quarterly Newsletter