Investing in Uncertain Times – Election Edition

It’s that time that comes around every four years – presidential elections. There is one question that inevitably pops up: does the presidential election impact the stock market? 

Retirement planning can provide peace of mind because you’ll prepare for the election’s influence on the market. 

The Short-term Effects of a Presidential Election 

Volatility in the short term is certain. You have economists and investors clamoring to figure out this one important question: if this candidate gets into office, what will their policies do to the market? News headlines are also all over the place, and these headlines and breaking news stories that happen every day will cause volatility. 

If you look back to the 1900s, we know that the election won’t impact markets in the long term. 

Where will the world be after the election year? Where will the U.S. be? Investors will be asking these questions all year, and it does weigh on the market. 

Long-term Effects of a Presidential Election 

Since 1900, data shows that in the long term, a party change does not impact the markets. We do have up and down markets across the board, regardless of who is in office or if there’s a party change. 

If we were going to wrap this up right here, we would say yes: presidential elections do affect the market in the short term. 

But we’re not going to be wrapping things up just yet. 

What Can We Do to Have a Portfolio That Is Agnostic to the Election and Economy? 

Investing in uncertain times is best when your portfolio is agnostic, meaning that the economy and election will have little-to-no impact on the performance. Of course, we’re not saying that this is the “perfect portfolio.” 

We’re going to describe to you a way that we recommend structuring your portfolio for peace of mind. 

If you were to go out and speak to 100 financial planners, you would find that there are two big camps for portfolio management: 

  1. Passive: A passive portfolio is created on the basis of risk tolerance and is adjusted once in a while as your risk tolerance changes. The market will not have much bearing on the portfolio allocation. 
  1. Active: An active manager will adjust the portfolio regularly based on the current market environment. 

Both camps will argue that either the passive or active portfolio is best. Our growth portfolio combines both camps to offer what we believe is a well-rounded portfolio that you can rely on during good and bad times in the market. 

Inside Look into Our Growth Portfolio 

Our “growth portfolio” cuts an account in half, with the first theme being the strategic core, and the second theme being the tactical portion. 

The strategic core model is equity-based, and we buy ETFs. Our theme for the strategic core is based on where the market is going in the intermediate term. The strategic core will be invested at all times and consider where the market is and where it could be going based on the fundamental analysis. 

Today, the strategic core is invested in equities that tend to do better un an economic slowdown or recession. 

But as the sentiment behind a recession continues to weaken, we plan to make a shift based on fundamental analysis.  

Our tactical side of the portfolio considers what’s working well right now: 

  • Large Cap stocks 
  • AI and Technology 

The tactical portfolio looks at what’s working right now and is more active. We might make a trade every 4 – 6 weeks based on the trend changes that we see. We find that the tactical side of the portfolio works very well to mitigate risk during times of market deterioration. 

If you go back to when the market wasn’t performing well in 2022, the tactical was invested in lower-risk assets, such as government treasuries. 

When the market is working well, the tactical is invested in equities, but when there is some pullback, we can adjust the tactical portion of the portfolio. 

Portfolios based on Risk Appetite  

If you’re in or very close to retirement, you want stability, right? You’ve worked hard and you can’t stomach the dramatic ups and downs of the market any longer. We have many folks come in and want a portion of their portfolios to provide stability that the stock market cannot provide on its own. 

For these folks, we created the “Moderate Growth Portfolio.” 

For a moderate growth portfolio, we take 24% of the portfolio and put it into structured bank notes. What we do is: 

  • Approach big banks: Morgan Stanley, Citibank, Barclays, etc. 
  • Structure an instrument based on an annual percentage coupon rate 

At the time of this article in March 2024, the coupon rate is about 9% annualized. The goal of this type of portfolio is to lower the risk even further for the portfolio to have some fixed income coming in. 

We can also reduce risks further with the addition of fixed-income investments such as bond funds. 

The idea is that the portfolio is based on fundamentals (i.e., strategic core), what’s working right now (i.e., tactical), and stability (i.e., structured notes and bonds). If you’re reaching retirement, a portfolio like this provides you with peace of mind that your retirement is secure. 

Using this type of portfolio allows us to minimize risks by not putting all your eggs in one basket. 

We try to combine tried and true strategies so that if one is not working great, the other can help support the portfolio. 

If you want to learn more about our investment strategies or how we can help you minimize risk in your portfolio, feel free to reach out to us and schedule a call.