Should You Bet Your Portfolio on Who'll be The New President?
on Tuesday, October 11, 2016
What We're Reading
Who's going to be the next president?
The betting odds on the election at gaming site Bodog as of Oct. 10 are Clinton -425 and Trump +325 — meaning a winning $425 bet on Clinton will pay out $100, while a winning $100 bet on Trump would net you $325. At the same time, political analyst Nate Silvers' polls-only election forecast gave Hillary Clinton a 82.4 percent chance of becoming the next president versus 17.6 percent for Donald Trump.
For investors, the important questions are how the election outcome could affect their investment portfolios and whether they should do anything about it. It's a legitimate concern, considering the spikes in volatility this year caused by fears of global economic slowdown, dissolution of the European Union and policy reversal by the Federal Reserve.
A November election surprise could trigger renewed volatility in the financial markets.
"We've had many clients express concern with what's going on politically and economically," said Barry Glassman, CEO of Glassman Wealth Services. "The market can always come down 10 [percent] or 20 percent. Sometimes it can be Washington that causes it, but more likely the trigger is corporate earnings or geopolitical risk."
Conventional wisdom has it that the markets favor Republicans — particularly in the White House — because they typically fight for lower taxes and less regulation. Donald Trump, however, is not a typical Republican candidate.
Trump has promised tax cuts, but he has also railed against the "rigged" economy and talked of building walls to keep out neighbors. The market does not like uncertainty, and Trump may be as unpredictable a candidate as either party has ever fielded for the White House.
"Eighty percent of people's investment decisions are made with gut instincts. I try to help people think rationally — which is hard when it comes to money." -Lance Evans, wealth advisor with Northwest Wealth Management
It stands to reason that a Trump victory could hurt more than just the Mexican peso and the stock market. His bravado toward global trading partners and his talk about renegotiating trade deals and global security pacts could also put a chill in financial markets generally.
On the other hand, a President Clinton might also rock some boats. If Clinton wins, energy stocks could arguably take a significant hit. So might health-care stocks. Many believe her support for a financial transactions tax on high-frequency traders could seriously damage sentiment in the markets.
Financial advisors, however, don't waste a lot of time parsing candidates' policy statements or worrying about how markets will behave. They are telling clients to forget about trying to handicap the election and anticipating the market's reaction to it. It will do more harm than good.
"You can bet correctly on the presidential election, but the potential damage from guessing wrong about what will happen [in the financial markets] is much greater than any benefit you'll likely see," said certified financial planner Tim Maurer, director of personal finance for Buckingham and The BAM Alliance. "My advice to investors is to exercise active ambivalence regarding the election.
"Why waste brain space on what might or might not happen?" he added.
Politics is, of course, many Americans' favorite way to waste brain space.
Lance Evans, a wealth advisor with Northwest Wealth Management in northwest Iowa, has been fielding plenty of questions about the presidential contest.
His clients, generally conservative, are worried about government spending, the national debt and the future of their children. They're also worried about how it could affect their investments.
"You can't separate money and emotion with people," Evans said. "Eighty percent of people's investment decisions are made with gut instincts. I try to help people think rationally — which is hard when it comes to money."
The rational approach is to accept that you don't know who will win the election and, more important, that you don't know how the markets will react to the outcome. The most convincing evidence about presidential election years for Evans is that in 18 of the last 22, the S&P 500 index has had a positive return for the year and has posted an average return of 11 percent in those years.