Financially Speaking
Election Jitters? No Worries
As I sit down to write today (July 21), we are finishing up a hectic week of news over the last eight days. On Saturday the 13th, there was the Donald Trump assassination attempt, marking the first such incident involving a president or former president since the attempt on Ronald Reagan’s life on March 30, 1981. On Friday the 19th, global computer outages disrupted airlines, banks, hospitals, and small businesses due to a faulty cybersecurity update. Lastly, on the 21st, President Biden dropped out of the 2024 race.
By the time this article is printed, you will already know who the new Democratic nominee is. The presumption at this time is it will be Vice President Kamala Harris, who was endorsed by Biden. The talking heads on TV seem to be split: Some believe it will be Harris, while others think the decision will be left to an open Democratic convention when they meet in Chicago from Aug. 19-22. The similarities between now and the 1968 Democratic convention are remarkable. The 1968 convention was also held in Chicago, marking the last time a sitting president (Lyndon Johnson) did not run for reelection. In 1968, the Democrats held an open election where candidates vying for the party nomination worked to persuade delegates (who select the nominee at the convention) to vote for them. This was the last time either party had an open convention. The ’68 convention was marked by violent protests and party upheaval. Johnson’s vice president, Hubert H. Humphrey, emerged as the candidate. The election date this year is the same as it was in 1968, Nov. 5. Hopefully, cooler heads will prevail this year, but who knows? We are a nation that is truly divided.
Maybe the 1966 Buffalo Springfield song, “For What It’s Worth,” rings true today. Two excerpts from the lyrics may say it all:
There’s something happening here
But what it is ain’t exactly clear …
Paranoia strikes deep
Into your life it will creep
It starts when you’re always afraid
It seems as if almost every election has everyone complaining about the other party’s candidate, fearful and looking at the election as a doomsday scenario. The division in our country seems to be peaking. It is amazing how people say some of the craziest things when their candidate loses. Do you recall 2016 when Trump was running against Hillary Clinton? Celebrities were saying if Trump won, they were moving to Canada. No surprise, none of them actually moved. Unfortunately, what did happen was that some people panicked and changed their portfolios after Trump won. One woman comes to mind; she told me a year after the election that she had moved her entire 401(k) balance to cash after Trump was sworn in as president. She was so fearful that the markets would crash and she would lose all her retirement money. So, fear cost this woman a chance at a great investment return in 2017. The S&P 500’s total return in 2017 was 21.1% including dividends. This woman was not 100% invested in the S&P, but she did have 50% stocks and 50% bonds before the election. She would have enjoyed a good return. Remember that in 2017, interest rates were extremely low, below 1%. She didn’t lose any money, but she did miss out on a substantially better return.
I can’t predict what will happen or who will be the next president, but I can recommend that you stay fully invested based on your risk tolerance.
Take time now, before Nov. 5, to review all your investments. Think about it this way: If you are from an old-school family, chances are you had to help with a deep house cleaning in the spring and fall. In my house growing up, it was all-hands-on-deck twice a year to help clean. Mark your calendar now and set aside time to do a deep clean of your portfolios. Amazingly, some people only review their personal investment accounts because they receive monthly statements from their adviser or brokerage company. They forget to review their company retirement plans, possibly because they only receive quarterly statements.
Review both taxable accounts such as individual, joint, TOD (transfer on death), etc., and nontaxable accounts such as IRA, 401(k), 403(b), etc. Review the overall percentage in stocks, bonds, and cash. Ensure they are balanced in a way that matches your risk comfort zone. I know I say this a lot, but it is amazing the number of people I have spoken with over the years who just don’t do it. Is it fear or greed, maybe a little of both? I get it.
When the markets are doing great, like this year (up 17.4% year to date), it is human nature to keep your portfolio the same. If you are a moderate risk-taker, you want your portfolio to have 60% stocks and the balance in bonds and cash. If you haven’t reviewed your portfolio in the last few years, your stock percentage may be substantially higher than you are comfortable with.
The Capital Group, home of the American Funds, has just published a wonderful piece titled, “Elections come and go. Results last a lifetime.” It shows election results from 1936 through 2020 by party, along with what was going on at that time, and annual total returns. There have been and will continue to be tumultuous events that affect the markets. The Capital Group states that “the current economic and political challenges may seem unprecedented, but a look back shows that controversy and uncertainty have surrounded every campaign.” There always seems to be something going on that affects elections, whether it is geopolitical conflicts and war, civil unrest and protests, pandemics and outbreaks, or weather-related incidents (remember Superstorm Sandy in 2012). This piece shows the growth of a hypothetical $10,000 investment in the S&P 500 index made at the beginning of an election year, for a 10-year period. This is for every election year dating back to 1936. For each of the 10-year periods, 20 out of 20 elections, there was a positive return. In 18 of the 20-year periods, it showed you doubled your money.
In the words of Franklin D. Roosevelt, “The only limit to our realization of tomorrow will be our doubts of today.” This still rings true today. So, let’s take a breath. We will have a new president sworn in on Jan. 20, 2025. If you have taken the time to do a fall cleaning of your portfolio, then relax and enjoy the endless summer down the shore. Chances are, at the end of 10 years, you may have a positive return regardless of whether your candidate wins or loses. So, buckle up, buttercup, and enjoy the ride this fall.
Now that we’ve gotten the election jitters out of the way, head to the beach with your chair, favorite book, and beverage. Don’t forget the sunscreen.
Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is the former President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc.. Securities are offered through Commonwealth Financial Network®, member FINRA/SIPC. Fred may be contacted at 800-647-0762, by e-mail at freddunbar@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342.
Advisory services offered through Planning Directions, Inc., a Registered Investment Adviser, are separate and unrelated to Commonwealth.
This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal. Past performance is no guarantee of future results.
