Josh Mudse, CFP
If (the Presidential candidate I do not agree with) wins in November, I PROMISE that I am moving to (Canada, Australia, Belize, etc.). If they win, our country is done and I will not stay here to watch it crumble.
By now, you have probably heard a few celebrities, a handful of political commentators and possibly a friend or family member express sentiment similar to the statement above. Common perception is that the 2016 Presidential Campaign is the most contentious of all time, a result of increased polarization and idealism over several decades. With the election cycle entering the final weeks, the rhetoric is heating up, personal insults and negative ads are ramping up, and voter fatigue could not be any higher.
With all of the attention focused on the campaign, it is perfectly normal to have concerns about how the economy and stock markets will react to a new President. The Vanguard Group recently published results of their study on the effect elections have on both short term and long term market performance. According to the data they analyzed, average daily market volatility is about 10 times higher in the 100 days leading into the election than the 100 days immediately after a U.S. Presidential election1. The following chart suggests that within the first 6 months following an election, volatility returns to normal levels.
You might be thinking that the election of 2016 is somehow unique; that this election season has been different somehow. Market pundits would certainly have you believe that markets have been unusually volatile. The exact opposite has been the reality. We can use the CBOE Volatility Index (VIX) as a measure of market volatility. For the three months ending September 30, only 3 trading days saw volatility exceed the average volatility for the last year2.
We work with our clients to develop a comprehensive financial plan to meet both their short term needs and long term desired outcomes. That plan includes an investment strategy built specifically to meet those long term goals. According to the same Vanguard Group study, after taking volatility into account, average market returns have been identical under Democrat and Republican Presidents.
We believe that economies organized under capitalism find ways to grow over the long term. Companies have a remarkable ability to adjust and thrive to new laws, regulations, and changing economic conditions. A new President is constrained by the role of Congress. All campaign promises have to be legislated through the 535 elected members that represent a wide range of views and priorities.
Do you need an investment game plan based on the results of the election? In our opinion, no. We prefer to focus time and energy to the decisions that our clients can control. Decisions about asset allocation, finding companies that have long term records of generating free cash flow, looking for opportunities to reduce taxes, and implementing strategies to maximize the value and impact of their charitable giving.
Sources:
- Election: Markets are nonpartisan long term; September 23, 2016; vanguard.com
- Google Finance
Disclosures:
All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future results. Diversification does not ensure a profit or protect against a loss.This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Munn Wealth Management can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein. Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Munn Wealth Management. Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach. Only your professional adviser should interpret this information. 1323DAG