A portfolio for the next four years and beyond

The election is over, and regardless of who you voted for, you may be wondering whether you have the right investment strategy for what’s next. Quite frankly, we believe that ignoring politics is a great long-term investment strategy. Here’s why.

In 11 of the 13 presidential elections cycles since 1972, the S&P 500 has had positive returns in the 12 months after the election. Since 1948, the S&P 500 has had double-digit annualized returns, on average, whether a Republican or a Democrat was in the White House.

This time is not different

The market’s initial response to the election outcome has been positive. But be smart. Remember, you’re surrounded by media whose lifeblood is sensational headlines and melodramatic pundits. They’re intended to lure us in and leave us emotional. That benefits them, not you, and it can be toxic to your financial future. Emotionally driven decisions about your portfolio can seriously derail your financial goals.

Stay in the market and stick to the facts. Here are some facts:

• Money is green, not red or blue. If you sold out of the stock market after Biden won or Trump won, you would’ve missed double-digit gains posted the year after they were elected. 
• The Federal Reserve is cutting its interest rates, which has generally tended to boost the stock market. The Fed cut its rates for the second time in a row on Nov. 7, and it could make more cuts. Since 1980, the S&P 500 has had five of its best years during previous rate-cutting cycles when a recession did not occur.
• Diversified portfolios have exposure to bonds that could benefit from the Fed’s continued rate cuts. (Bond prices go up when interest rates go down.)
• The real engine of stocks, corporate profits, remains revved up. Chief executive officers of publicly traded firms and the employees who work there (you may be one of them) are paid to grow profits. Their laser focus on profit growth won’t stop because one political party is in power versus another.

Volatility is normal

Sure, post-election uncertainty may result in increased market volatility. Volatility is not to be feared. It’s a normal part of market behavior.

A professionally managed, highly diversified portfolio of stocks and bonds can be well positioned for uncertain times.

A professionally managed portfolio means an investment team can respond to volatility for you by strategically rebalancing the portfolio. Rebalancing maintains your asset allocation, which is specific to your goals and personal timeframe. Make sure your portfolio is diversified across thousands of stocks and bonds and across asset classes, so it has exposure to different areas of the market to help limit risk.

Focus on the facts

So, which market sectors and stocks will gain or lose based on the policies that may be enacted? At this point, we only know about campaign proposals. Since when does a law that passes closely resemble the proposals candidates stumped on to get elected? Remember there are serious disagreements within our political parties as well as between the parties themselves, and that can impact what’s passed.

There are so many possible legislative outcomes, but extensive portfolio diversification increases the likelihood that your portfolio has exposure to whatever upside emerges while mitigating risk.

If today’s level of uncertainty feels new for some people, it’s not new for us.

For over 35 years, Edelman Financial Engines’ investment approach has navigated its client portfolios through a full range of market environments – financial crises, elections and geopolitical strife – and it’s evolved through research and technology. 

Our diversified portfolios are constructed to anticipate markets like today’s but also tomorrow's. Make sure you have the right investment strategy that helps you achieve your financial goals regardless of elections.