finances

It Wasn’t About The Election

by Karl Eggerss, Senior Wealth Advisor – Covenant, a Registered Investment Advisor

“It’s the biggest election of our lifetime.” “The market will definitely crash after the election”. These were a couple of comments I heard prior to the 2020 presidential election. And, they were the same comments I heard prior to the 2016 presidential election. And the 2012 and so on. But, should you really modify your portfolio based on elections? It’s not uncommon for investors to become nervous prior to elections. In fact, volatility does tend to increase in the weeks leading up to an election. However, investors that are too focused on elections and changing their portfolio tend to regret that decision later.

Building an investment portfolio to help meet financial goals has more to and have enough diversification that if short-term do with an investor’s time horizon, financial goals, ability to take risk, and willingness to take risk than it does about specific events like elections. In fact, much of the data suggests that stock market cycles are very similar over the long term regardless of who is in the White House. So, why do so many investors get so caught up in politics in regard to their portfolios? There are a few logical reasons. A new president could try and change tax policies, he or she may be more or less friendly on business, or they may work better with Congress. These are just some valid concerns that could impact the profitability of companies and thus the future value. But, this is just one piece of a very large puzzle. What about interest rates, Fed monetary policy, the underlying health of the economy, consumers, etc.? Those are also factors that move stocks.

But, it’s even bigger than that. It goes back to you and your financial situation. For example, should a 22-year old fresh out of college that’s saving in their new 401(K) be concerned about the election from a financial standpoint? No. They should be learning the art of saving, compound growth, and the long-term returns the stock market has historically provided. Conversely, should an 80-year old that is living off their portfolio by making monthly withdrawals be that concerned about who wins an election in relation to cash needs can’t be met, the portfolio can supplement. Elections shouldn’t play a part in that construction.

To put it mildly, financial markets were volatile in 2020. The volatility that was present had more to do with COVID and a future vaccine rather than the election. But, even COVID shouldn’t be something that alters your long-term plan. The key is to have a plan. Yes, plans will be modified over time as your situation changes. But, events such as elections shouldn’t have a bearing on it.

Karl Eggerss is senior wealth advisor and partner at Covenant Multifamily Offices, LLC. 114 E. Highland Dr. – Boerne 210.526.0057 creatingricherlives.com

The contents of this article are provided for informational purposes only. It is not an exhaustive list and is not intended to provide any legal or tax advice. Please consult your respective legal, tax and financial advisor before taking any action.