The Impact of the Election on Your Portfolio

With the election now over and the outcome a surprise to many, you may be wondering how this will impact your portfolio. It’s no secret that markets don’t like uncertainty. Last night, as the votes were being counted and the expectations of who would be our next president began to shift, stock market futures began to drop. By midnight they were down over 5%. As markets around the world began to digest this new information we saw a rebound. By morning, the S&P 500 Index opened only 0.37% down from yesterday’s close, significantly less than suggested by the futures market at midnight and well within normal daily volatility.

While presidential elections always add a layer of uncertainty into the markets, they historically haven’t had a long-term impact. Short-term volatility often spikes leading up to and immediately after the election, but then stabilizes within 100-200 days after.

In the days, weeks, and even years to come there will likely be debate about the impact our new president will have on the long-term performance of the stock market. If history is any guide, it may not matter much. Since 1853 there has been no difference in the average annual stock market returns based on which party controlled the White House. The average annual market returns have been 11% under both political parties (1853-2015, source: Vanguard).

I did not recommend any portfolio changes as we headed into the election and I am not recommending any now. Changes to your financial plan should be made in response to changes in your personal goals and informed by long-term expectations. While we may experience some short-term volatility as a result of the election, long-term market expectations haven’t materially changed. I continue to believe the most meaningful factors investors should focus on in their portfolios are diversification, costs, and taxes. Whenever we are tempted to make changes in response to factors we can’t control, it’s important to remember to stay the course!

Posted: November 9, 2016