The 2020 US Presidential Election and Investing

On the eve of the 2020 U.S. presidential election, some investors were worried about what it will mean for the market. Today, Joe Biden has been elected the 46th president of the United States, according to major news outlets. Kamala Harris, his running mate, is the first woman of color to be presumptive vice president-elect. It’s a big win for diversity. We are all for it.

By winning the state of Pennsylvania, Joe Biden got 273 electoral votes, surpassing the 270-electoral college vote threshold needed to win the presidency. The campaign between the two candidates has been intense and seems to continue. President Donald Trump refused to acknowledge Joe Biden’s victory and vowed to challenge the validity of legally cast ballots.

During this 2020 Election, when it comes to the House of Representatives, Democrats are projected to keep the majority with 214 seats for the Democrats as of today, and 196 for the Republicans – 218 is needed to win the majority. At the same time, Republicans are expected to retain the Senate, but the battle is tight. We left it at 48/48 with 51 needed for a win.

What does the US 2020 election mean for you? Our advice for worried investors remains the same: stick to your plan.

What does history tell us about the impact of US elections on the market

Even if we can not predict the future, there are many lessons we can take from the past. First, what history and decades of data show us is that staying the course wins.

Second, what data also shows is that the change in U.S. presidents has a marginal impact on the ability to impact the U.S. economy and markets. As a result, The 2020 U.S. election should not be any different. While the president has some control of key cabinet appointments, it is the Congress that sets tax rates, passes spending bills, and writes laws regulating the economy.

Studies show that throughout their history, the stock market delivered about 7% after inflation. Different presidents came and went, shifting between Republican and Democrat. The 2020 U.S. election, The Civil War, World War I, World War II, even the Great Depression were short term movement in the grand scheme of things. Overall, the trending movement of the economy has historically been upward, no matter the short term impacts.

The 2020 U.S. Elections should not impact your investing strategy

Uncertainties create concerns and it is not easy to stay calm and stick to the plan.  We are emotional by nature. Yet emotions have been proven to be an investor’s worse enemy. To be a good investor is to be patient.

Generally, investors’ returns fall short of their own portfolios returns. Not only do they buy and sell based on irrational decisions, but because they also tend to sell the performing assets and buy underperforming ones.

Global equity markets have been strong since end of October but it will be interesting to see how they move this week post decision. Forecasts are expecting markets to continue to track upwards thanks to Biden’s win. But does that matter in your long term plan?

For those trying to speculate, anyone who withdrew last month missed out on new +8% gains (S&P). Academic research speaks to the importance of passive long term investing. It is not as exciting as trading, yet it is the one that is rewarding financially. Trading is speculation. Good investing is long term and ‘boring’. Media thrives on news, and big financial institutions make money out of constant trade.

On the investing approach and changes to portfolio allocation

The long term approach does not change based on short term market movement. Our committee built the portfolio with market volatility in mind. We look into the weighting of the assets to find the best combination that we believe maximizes your long-term returns while minimizing overall risks. From time to time we’ll rebalance your portfolios to make sure you are still on track.

The reality is no-one can predict the future. In summary, what you can do is the following:

1. Diversify
2. Stick to your plan and continue to add money when you can
3. Block the noise

Consider this: Despite any short-term movement that you may see – whether it’s due to the pandemic, elections, or any other event – if you’re invested in a well-diversified portfolio, you will end up benefiting over the long term.

Unless your situation changes, the best course of action is to always stick to your sound investment plan. Of course, sometimes personal situations do change. So remember, as always, we’re here to help if you have any questions.