“Mr. Speaker, The President of the United States!”
The elections are coming. The elections are coming. On November 8th Americans will go to the polls to elect the forty-fifth President of the United States. Election season always invoke an excess of emotions as individuals absorb advertisements, stump speeches and debates. This election season is no different. It doesn’t matter your political affiliation because as soon as you cast your opinion about the election you’re guaranteed to disappoint half of the people. The popular vote hovers around 50% so half the country will love the result and the other half will hate it.
Investors are emotional about this election as well. Investors will try to position their portfolio to benefit from the winning party’s platform. Other investors want to sell their stock holdings and wait for the election parade to pass. The “sell all” investor will allocate their portfolio to cash before the election and then buy into the market after it is over. This investor, along with a few million other traders, is trying to time the election so they can avoid a drop in stock prices before the vote and then profit handsomely after the vote. Sounds easy.
Does it make sense to try and time the election? A recent report from Dimensional Fund Advisors found the election month generated no more or no less volatility than a typical month. A majority of the time the election year monthly-market returns fell in a range of negative 2% on the low end and a positive 6% on the high end. Again, these returns compare favorably to non-election years.
I echo the sentiments of Dimensional Fund Advisors as they recently quoted in their third quarter report, “Investors would be well-served to avoid the temptation to make significant changes to a long-term investment plan based upon these sorts of predictions.”
In reviewing the past ten elections, dating back to 1976, an investor who purchased stocks on November 1st of the year of the election (11/1/1976, 11/1/1980, and so on) generated an average annual return of 7.53%. An investor who purchased stock during Calvin Coolidge’s presidency in 1926 generated an average annual return of 10%. A $10,000 purchase in the Standard & Poor’s 500 in 1926 is worth $53 million at the end of December 2015.
Here are few election tips for your portfolio.
1. Focus on your long term goals. The election will come and go and investors will soon shift their focus to other fun topics like earnings, interest rates and taxes.
2. Our country is diversified with three branches of Government: Executive, Legislative and Judicial. Our founding fathers realized the beauty of checks and balances and so should you. A well-diversified portfolio is a vote for investment success.
3. Vote early and vote often. The sooner you start investing and the more often you invest the better your results will be.
I’m Bill Parrott and I approve this message.
The business of America is business. Calvin Coolidge.
Bill Parrott is the President and CEO of Parrott Wealth Management. www.parrottwealth.com
October 16, 2016
 Dimensional Fund Advisors 2016 3rd Quarter Review, page 15.
 Morningstar Office Hypothetical Tool.
 Dimensional Fund Advisors 2016 Matrix Book page 14
Past performance is not a guarantee of future performance.