Our Presidential Election: What’s an Investor to Do?

download-printable-article Download Printable Article

Presidential Election 2016By Jason Oshins, Financial Advisor, MBA

This article takes a non-partisan view of the impact of the 2016 presidential elections.  At the end of it, I will share my investment advice.  In the Crowded House classic “Don’t Dream It’s Over”, Neil Finn sings, “they come to build a wall between us.”  This feels like the world today.  We’re in the heat of it.  It’s unavoidable.  Everywhere you turn, people are talking about the state of the world.  What if Hillary wins the election?  What if Trump trumps Hillary?  What does this mean for the country, for the world?  What will become of jobs?  What will become of the economy?  What should I do with my money?  Will the markets collapse?  Will the markets catch fire?

Everybody seems to have an opinion.  Punditry is synonymous with prognostication.  High on confidence but low on accountability, they predict what the future holds, as though they have a magic crystal ball.  Furthermore, think about what news attracts eyes and ears.  Certainly, a positive it’ll-work-out message is far less intriguing than a negative sky-is-falling one.  But, this is real life.  It’s not about ratings or sales.  Clients’ retirements depend on it.

Let’s look at the “real” world, the one where we use facts and evidence instead of opinions and assertions.   Otherwise, we’re at the mercy of the pundits and prognosticators, and this can wreak havoc on the psyche.  In fact, we’ll see just how critical a role investor behavior plays on investor performance.  When we look at returns, the market does what it’s supposed to do; it behaves how it’s supposed to behave.  The market isn’t the issue[1].  Rather, the problem is human behavior.  We experience a buffet of emotions, highlighted by healthy doses of fear and greed.

Over the past 30 years[2], the average equity investor has obtained returns of 3.79% per year.  That barely beats the inflation rate of 2.79% over this same period.  This means that these investors have assumed significant risk to barely keep up with the purchasing power of a dollar.  In comparison, the S&P 500 – no stock picking and no market timing – has returned on average 11.06% per year.  Think about this – investors obtain returns that are dramatically lower than those they would have received had they just deposited a check into a fund that mirrors the S&P 500, taken a 30-year vacation, and returned to look at their investment statement.  And when we have an academically-sound[3], evidence-based mix, comprised of domestic and international, large and small, and value and growth holdings, the performance is even better, holding risk level constant.  What gives?  We know that remaining disciplined isn’t easy.  In fact, it’s incredibly difficult, as irrational investor behavior leads to buying and selling at the wrong time.

So, what’s an investor to do?  The answer is surprisingly simple, but it sure isn’t easy.  Success doesn’t require outsmarting the market.  As we see, investor behavior plays a prominent role in individual success.  Success requires being rubber to the pundits’ glue and letting their harmful messages bounce off you.  It requires avoiding the psychological traps that cause irrational behavior.  Nobody knows the impact of this or any election, and if they did they wouldn’t tell you.  They would take this knowledge and capitalize on it.  After all, by sharing it, it loses its value.  Markets go up, and they go down.  What’s both knowable and known already has been assimilated into each stock’s price.

The rules remain the same.  Own equities.  Diversify globally.  Rebalance to the academic mix when the market goes up and down.  And most importantly, remain disciplined.  However, this is easier said than done, and for most investors – as evidenced by average investor returns – it requires working with an advisor and coach.

After “they come, they come, to build a wall between us”, Neil Finn sings, “we know they won’t win.”  Neil continues, “Get to know the feeling of liberation and release.”  Don’t let them win.


CITATIONS:

[1] Historically, the market has appreciated significantly both during and following an election year, irrespective of the President’s affiliation.  As per Dimensional Fund Advisors’ “Market Returns During Election Years” (October 17, 2016: page 2), the S&P 500 index from 1928-2013 had an average return during the election year of 11.2% and of 9.3% for the year following the election.

[2] “DALBAR’S 21st Annual Quantitative Analysis of Investor Behavior.”  2015: page 5.  DALBAR, Inc. is “the financial community’s leading independent expert for evaluation, auditing, and rating business practices, customer performance, produce quality, and service”.

[3] This refers to globally-diversified portfolios adhering to principles developed by award-winning economists such as Harry Markowitz, Eugene Fama, and Kenneth French, among others.


ABOUT THE AUTHOR

jason-oshins-financial-advisor-mba

Jason Oshins is a Financial Advisor with Wealth Strategies Group. He works closely with clients throughout the country to increase wealth during lifetime, improve income during retirement, and provide a greater legacy upon passing, while also protecting their estate from taxes, inflation, and market volatility. He specializes in the areas of estate planning, investments, retirement planning, insurance planning and design, disability protection, long-term care, wealth transfer, and business planning. Jason obtained his MBA from the University of Michigan in Ann Arbor. He can be reached at (702) 735-4355 x 218 or at [email protected]


OTHER ARTICLES IN THIS ISSUE


This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Data and rates used were indicative of market conditions as of the date shown. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 6455 S. Yosemite Street, Suite 300, Greenwood Village, CO 80111, 303-770-9020. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. Wealth Strategies Group is not an affiliate or subsidiary of PAS or Guardian.
2016-30670 (exp.12/16)

Leave a Comment