Here’s an interesting puzzle: Why do we cringe at the sight or sound of breaking glass, but we salivate over breaking news?
In the run-up to the U.S. presidential election, you probably got enough breaking news to propel you well into 2021. As usual, everyone had a prediction as to who would prevail, and what would happen to our political, social, and economic landscape as a (supposedly) direct result.
Today, it’s the day after election day, and votes are still being counted in some parts of our country. If you’re worried about how the election might affect your financial future, I’d like to offer three calming insights:
- Cause and effect are rarely as direct as we might hope or fear. Please apply this point to any temptation you may be feeling to alter your investments because “X” has just happened, or in case “Y” seems about to. Before, during, and after the election cycle, pundits will be proclaiming they can predict the financial fallout from an election characterized by such stark contrasts. At least in terms of tomorrow’s market prices, they do not know. They cannot know. There are simply far too many interacting interests to make the call.
- It’s much easier to explain an outcome than to predict it. In this Forbes column, the author describes how scientists have detailed models for explaining why volcanoes occur. But they still cannot predict each eruption. The same can be said for financial markets. We have excellent models for explaining a market’s overall factors and forces. But our ability to predict its individual events or specific moves remains as elusive as ever.
- Elections come and go. Your investments last a lifetime. As U.S. voters, we have the opportunity to select our next president every four years. As investors, we are best served by measuring the balance of power in our portfolio across decades rather than years. As Dimensional Fund Advisors has demonstrated in this excellent illustration, “for nearly 100 years of US presidential terms [the data] shows a consistent upward march for US equities regardless of the administration in place.”
In other words, no matter which political party is in power, your best chance for achieving your personal financial goals remains the same: Continue to give your investments ample time and space to benefit from the market forces just described. As we move together through the breaking news yet to unfold, we hope you vote according to your values, but heed this valuable advice about your lifetime investments. If you have questions or would like to discuss any concerns about your portfolio, we’re here for you. Feel free to contact us anytime. Otherwise, our advice remains: Stay the course!