Each of these headlines shared many similarities — they were negative, involved uncertainty and were outside the realm of our control as investors. In many cases, they swallowed-up a lot of initial attention before fading away as a new headline took the center-stage. Now with the direction of the US election results in the limelight, investors face yet another unknown along with the potential range of emotions that uncertainty can bring.

What should I do with my investments as power shifts in the White House? As frank as it may seem, the best advice for a well diversified investment portfolio is probably nothing, unless you are experiencing significant personal changes in tandem with the results of the election. If not, chances are your financial plan already assumes that large geopolitical events, like elections, will occur over your time horizon and your portfolio is built to withstand market movement that could follow. 

It is natural to want to take action when faced with the uncertainty of a US election and this behaviour is not limited to our investment portfolios. In the early days of the COVID-19 lockdowns, consumers rushed to stockpile supplies such as toilet paper that led to shortages on store shelves. Other consumers then joined in, fearing they may miss out. The result was a self-reinforcing feedback loop which only worsened the situation.

Election results and market history

Major market events such as elections — especially when results are contested or delayed — can precipitate a similar reaction to uncertainty from investors as they digest financial reporting and speculation hits headlines. However, if we associate the success of our investment portfolios with the outcome of every election, we are bound to be making constant changes. As we’ve seen, much can happen in a given year, let alone four. A portfolio that is built to withstand a broad range of policy, lawmaking and other geopolitical events will be the resilient foundation that you need to execute your financial plan and to achieve your goals.

If an investor looked to invest as congruently as possible with the Trump administration from 2016-2020, they likely would’ve pointed to financial and energy stocks, as they were forecasted to benefit most given deregulatory policy that came from the administration. As it turns out, these sectors ended up exhibiting some of the worst US sector performances, precipitated by an event no one could have predicted — COVID-19. When voters headed to the polls four years ago, this event could not have been predicted and would not have been the basis of any one person’s vote. We know in hindsight that the performance of these sectors also cannot be attributed solely to the White House. Therefore, it is an apt illustration of how unknown the future of markets is for all investors, regardless of who rises to commander-in-chief.

Many other instances of unpredictable events can be found over the past few decades. Clinton would not have anticipated the tech bubble in 2000 and George W. Bush would not have anticipated 9/11 nor the Great Financial Crisis to occur during his tenure in office. Despite the political power of the President, there will always be market events that transpire and cannot be proactively planned for. Historically, presidents and political parties have always experienced inconsistent market returns, with the only similarity between presidential terms being that over time the market has typically grown in value. Since 1953 the S&P 500 (the best proxy we have for the US stock market) has returned 10.81% annually in USD terms — but not without bumps as we mentioned along the way.