Written by: Debra Brennan Tagg
Opportunities and Risks: Three Key Post-Election Ideas for Your Portfolio, and How we Plan to Help
The high level of emotion surrounding the upcoming election has caused many investors to become narrowly focused on the short-term and how the US stock market will respond to the election results. Soon we will learn who the president will be for the coming four years, and equally importantly, the composition of his Congress. Our national policies regarding taxation, regulation, and infrastructure spending will be shaped by the efforts of the executive and legislative branches, and will undoubtedly affect US businesses, our economy, and the financial markets.
The potential outcomes of these policies deserve the attention of long-term investors, and will be dissected by money managers around the world, including us. As seasoned and data-driven investors, we know that the election is just one (albeit large) data point that will drive the US stock and bond markets over the coming months and years. For example, each presidential candidate has voiced ideas about trade relations with China. While our trade policies with China are critical to the growth of certain industries, these policies don’t happen in a vacuum. As trade has declined with China, it has increased with other countries, creating new influences on our total trade deficit, our manufacturing sector, and the economy. The same is true for potential changes in the healthcare, energy, technology and financial sectors. Each of these may present risks, or opportunities, or both, in that particular sector and in other parts of the economy.
We remain politically neutral in our practice, so we evaluate all changes - including elections - as pieces in a very complex puzzle to consider for our portfolio design, and how that design applies to each client. We also believe that when investors are educated about their portfolios, they can become more confident in how their investments can help them achieve their life goals. We have three recommendations for investors to consider as we approach the election:
Understand your portfolio. The media will have wall-to-wall election coverage in the coming weeks, especially if we don’t know the result promptly. We will undoubtedly hear about things that “will” happen in the economy, certain sectors, and the financial markets, and these projections - presented as facts - can become unnerving. However, your portfolio may already be designed to address these possible outcomes. Are you overly concentrated in one sector, and therefore have high risk if that sector is affected by the election? Or are you invested in a diversified portfolio that has flexibility to react to market changes?
Know your options for cash. If we do have a short-term dip in the stock market due to the election results, cash can play a role for you. Short-term investors (those who need to use their money in the next 12 months) should already have the cash they need in a designated account, and probably should not consider risking that cash by investing it. However, long-term investors with cash on the sidelines may consider whether they want to invest some of that cash towards their long-term goals, if we see a short-term increase in volatility that presents a buying opportunity.
Consider your taxes. One of the most stark differences between the two candidates is their approach to taxes. We are currently under a very friendly tax code, which we believe would change under a Biden presidency. If Biden is elected, and especially if Democrats win both houses in Congress, it may be wise to accelerate taxes into 2020. This may include decisions about your income, your portfolio, how you run your business, and Roth conversions. You may also have changes to your estate plan that should be considered.
To continue this conversation, we are hosting a live interview after the election with two financial market experts who can help you understand the new opportunities and risks in the economy and in the global marketplace. Together we will look forward to the comprehensive landscape of factors that are likely to affect investments over the next few years. During our discussion with Clark Biggers, Principal, PGIM, and Ira Carnahan, Portfolio Specialist, T. Rowe Price, we will answer these questions:
- How will the U.S. election results impact the economy and markets?
- How can investors prepare for these potential changes?
- How are other apolitical factors, such as Fed policy, affecting the markets?
If you would like to learn more about the financial markets and what this may mean for your investments, please join us for Beyond the Election: Opportunities and Risks in the Stock and Bond Markets on November 18th. Click here to learn more and register.