January 10, 2024

Financially Independent

by Adam J. Morgan, CFA, CMT

In the spring of 2003, yours truly was unceremoniously eliminated in the very first round of tryouts for a new television show set to begin airing on NBC the following year.  That show was to be hosted by a well-known real estate developer from New York who would later go on to coin the catch phrase, “You’re Fired.”  In an interesting twist of fate, years later that same man would survive multiple rounds of tryouts in an effort to work for me, but eventually found himself on the receiving end of his own catch phrase. 

It's no secret that 2024 will play host to a highly contested U.S. Presidential election, and it’s no secret that politics have become difficult to discuss, even amongst friends.  Unfortunately, it’s also no secret that investors are prone to make bigger mistakes in election years.  The stories of investors taking aggressive action to avoid what they believe will be the negative impact of a presidential election on the stock market are not as uncommon as you may think.  I witnessed firsthand investors liquidating their portfolios entirely at the election of each of the last three U.S. Presidents.  In each case those were not the best investment decisions.  So with things promising to be contentious this year and even potentially a bit mean-spirited at times, how should investors be thinking about the upcoming election?

Well, what does your financial plan say? 

That one simple question can help save investors from making a mistake and here’s why.  If your financial plan has been constructed properly then it is supported by longer-term assumptions and expectations around growth rates of earnings, inflation, income, and expenses.  That allows you to monitor your progress ongoing over time against a benchmark tailored to reflect a proper expectation of what is needed to achieve your financial objectives given your own personal risk tolerance, time horizon, etc.  The very exercise of constructing a financial plan of this kind forces one to think of things from a longer-term perspective.  That in turn helps us to put the upcoming election in the right context and should ease the worried mind a bit. 

Analyzing stock and bond market returns around every presidential election in the modern era leads any objective analyst to the clear and simple conclusion that the data is clearly inconclusive.  Obviously, leadership and public policy are important to our country, but according the data, the effect of election outcomes on the price of stocks and bonds is not obvious at all, at least not during that particular election year.  And that realization alone allows us to avoid making a rash decision.  That’s the power of having a financial road map.

I believe the question investors should be asking themselves as we enter 2024 is not, “Should I be invested in stocks and bonds?”, but rather, “How should I be invested in stocks and bonds?” 

To answer that question, we’ll have to look under the hood a bit more closely at some of the key policy differences of the front-runners in the polls, and then assess their likelihood to become the eventual party nominee, and ultimately, the President of the United States. 

Fortunately, you don’t have to be an expert on politics to know the key policy differences among the candidates.  They are happy to tell you themselves.  Control over the White House and both houses of Congress could influence a number of important aspects of our economy which in turn could present some interesting investment opportunities in the coming years.  The candidates are likely to disagree on individual and corporate tax policy, including state & local tax deductions (SALT), their approach to a regulatory framework on global trade and important industries such as healthcare, as well as spending priorities in key sectors such as energy, infrastructure, and military defense.

In my view, it makes a lot more sense to monitor the candidate’s respective positions on these key policy areas because the resulting investment thesis is more likely to be rooted in information that is more trustworthy, ultimately making our analysis more robust than simply speculating on an election winner and how the stock market might react to that news.  

After all, if the Presidential race in 2024 does wind up being a contest between the two current frontrunners in the polls, it will be a race between two men who both presided over a stock market that surprised to the upside but did so in very different ways. So instead of abandoning our long-term financial plan altogether, let’s instead lean into a smart asset allocation strategy that allows us to overweight favored sectors and industries to take advantage of the policy path of the eventual election winner.  I believe that to be a much better way to protect and grow capital.

If you disagree or think my approach to the election is too cavalier, that’s ok, reasonable minds can differ.  But before making any big sweeping changes to your investment portfolio that run counter to your long-term financial plan, take a look at this chart produced by Bank of America’s Global Research group this past month.  There’s a lot of evidence baked into this chart that suggests that despite our biggest fears, everything is going to be ok.  Our country has survived many different elections and unique political situations to continue to prosper because of the dynamism of our economy and capital markets, and I simply do not believe that there will be anyone on the ballot in 2024 who will change that.

Past performance does not guarantee future results.