Weekend Reading: U.S. Election and Your Portfolio Edition
I’ve fielded a dozen emails from clients and readers about the U.S. election and how it might impact their portfolios.
The short answer: Who knows?
A longer answer: The stock market probably doesn’t care as much about the election as you think it does.
Besides, there has been an election every four years for the last 250 years. What do people think is going to happen?
There will always be something going on in the world that causes anxiety for investors. What we need is to come up with an investing strategy that we can stick with through good and bad times, knowing that it will meet our long-term objectives.
Once you’ve decided on that investing approach, the first rule to know is:
“Your investing approach shouldn’t change based on current market conditions.”
It’s one thing to be nervous about high market valuations, inflation, or changing governments. We can use evidence-based thinking to calm our fears knowing that staying invested in a globally diversified and automatically rebalancing portfolio leads to the best outcomes.
We also know that markets frequently reach all-time highs. And, while US markets in particular are high, emerging markets and international stocks are still relatively cheap by comparison.
We also know that the best inflation hedge is a globally diversified portfolio of stocks.
Finally, when it comes to government changes we often look to the US where investors get nervous around presidential elections. Investors wanted to dump stocks when Trump got elected the first time in 2016. Then they wanted to dump stocks when Biden got elected in 2020. On both occasions it would have been disastrous to bail on stocks and move to cash.
In summary, the stock market probably doesn’t care who is President of the United States.
If your portfolio is sitting in cash today, I cannot stress enough to get your money invested right away and not worry about macro events that may or may not have an impact on the market.
Otherwise you’ll always have a reason to panic and try to time the market (a slowdown in China, a European debt crisis, a regional conflict, the Dallas Cowboys winning the Super Bowl, etc.).
Stay invested in a low cost, risk appropriate fund and go enjoy your life!
This Week’s Recap:
10 years ago I sold all of my dividend stocks and switched to low cost index funds. Thanks to Bob Lai for giving me the chance to explain myself to dividend investors on his Tawcan personal finance blog.
We had a lovely 10-day holiday in Edinburgh, staying in the iconic Dean Village and exploring more of our favourite city.
This time we checked out the Edinburgh Zoo, hopped on a bus to Roslin to visit the famous Rosslyn Chapel, took a day trip to Glasgow to check out the University (our oldest daughter’s dream), met up with my friend and long-time freelance editor for drinks, and had some amazing vegan food in Edinburgh.
That’s it for trips this year, but we already have some travel plans for 2025 – including a week in Cancun in February and 10 days in Tuscany during Easter break. Summer is up in the air, but will likely include the Scottish Highlands and/or exploring more of England, specifically the Cotswolds.
My last weekend reading update looked at the TFSA snowball – an aggressive savings strategy to catch-up on unused TFSA contribution room.
Speaking of contribution room, it’s now official that the annual TFSA contribution limit will remain at $7,000 in 2025. That brings the total lifetime limit up to $102,000.
Promo of the Week:
Wealthsimple is fresh off of a wildly successful campaign in which they paid a 1% transfer bonus to customers who deposited or transferred money to their accounts.
Now they’re back with a new promotion, where you can get an iPhone or Mac when you register and move $100,000 or more to Wealthsimple.
- Register by December 13th
- Transfer or deposit $100,000 or more within 30 days of registering
- Once you qualify you can choose an iPhone or a Mac starting January 15th
- Deposit $100,000 – $299,999 and you’ll get an iPhone 16 or a MacBook Air.
- Deposit $300,000 – $499,999 and you’ll get an iPhone 16 Pro or a MacBook Pro.
- Deposit $500,000+ and you’ll get an iPhone Pro Max or a MacBook Pro with M4 Pro chip.
Get another $25 when you fund any Wealthsimple account with my referral code: FWWPDW
Good news for those of you with simple corporations – Wealthsimple has started to roll out early access for self-directed corporate accounts. For now, the entity must be a corp and must have only one beneficial owner and director (bummer for us, we’re joint owners).
I’m registering for the iPhone promo anyway in hopes they expand access to the self-directed corporate accounts. We’ve got $425,000 parked at Questrade that we’d love to move over to Wealthsimple.
Weekend Reading:
From MoneySense: After rushing into the real estate market, I quickly learned I wasn’t ready for the real cost of home ownership.
Forever an optimist (like me!) A Wealth of Common Sense blogger Ben Carlson asks: Am I a permabull?
Financial planner Markus Muhs shares why dollar cost averaging is good for the soul.
In retirement, some income is not subject to withholding tax, and you may potentially owe tax after filing each year. Advice-only planner Jason Heath explains how to plan for taxes in retirement.
Are you afraid to begin investing? Millionaire Teacher Andrew Hallam explains why you should invest your money as soon as you have it. Hmm, sounds familiar.
Does your relationship with your financial adviser feel off? Financial planner Anita Bruinsma shares three red flags to watch for.
PWL Capital’s Ben Felix explains why you will probably lose money trading options:
Some advisors and investors like to play semantic games, saying passive investing doesn’t exist because even an index like the S&P 500 is “actively” reconstituted, while even the most passive investor still needs to “actively” contribute or rebalance. The point is that decisions need to be made.
Michael James on Money says that’s nonsense – passive investing does exist. I agree.
Finally, from HENRY to NENRY – Of Dollars and Data blogger Nick Maggiulli shares a cautionary tale about the low stability of high income.
Have a great weekend, everyone!
Robb,
It’s possible that what happens after the US election will present us with a situation that falls well outside the usual ups and downs of the markets. I’m talking about widespread bloody civil disorder if Trump loses. Some even predict a civil war. If any of that comes true, it’s hard to imagine the market persevering and things turning out OK in the long run. Instead, a repeat of the 1929 crash maybe? Or a complete collapse of the markets?
As for things turning for the better in the long run— for us seniors there is no long run, and the short run, under the above circumstances, could ruin us.
On to more pleasant matters. I’d be interested in reading a more detailed account of your recent trip. Scotland seems to have a hold on you and the family, so I’d love to know what it is that draws you to Scotland.
Hi John, of course anything is possible but the odds of an actual civil war or Great Depression transpiring after the election are pretty remote.
Trump has already been president, and he’s already lost an election.
The stock market has survived through the Great Depression, two world wars, the Cold War, 9/11, the great financial crisis, global pandemics, etc.
I’m not sure why this particular U.S. election would be any different. And if it was expected to be, wouldn’t we have seen a major sell-off leading up to election day? Markets hate uncertainty, and yet stocks are still hovering around all-time highs.
Is there downside risk? Sure. It’s possible for *anything* to be the catalyst for stocks to fall.
It’s similar to the lump sum versus DCA decision, and I’d argue if you are nervous about your portfolio then perhaps your risk tolerance is not as high as you originally thought.
As for Scotland, it’s hard to explain what draws us to that magical country. The highlands, the lochs and glens, the castles, the people, the history (certainly not the weather, although we lucked out with a mostly dry visit this time). We just love it there!
Great post and welcome back!
I’m surprised to hear the chatter about market insecurities with this election. Sure, it has divisive figures, but it’s always had divisive figures.
I wanted to check though so found these…
S&P 500 Price Change by Presidential Term:
Obama I: +84.5%
Obama 2: +52.9%
Trump: +69.6%
Biden (to Sept): +48.1%
Either way, blue or red, the S&P is green, green, green!
(Sure makes great theatre though!).