The Sun Will Come Up Tomorrow.
The story of Little Orphan Annie has been entertaining the public since 1924. The comic strip first appeared as a political cartoon criticizing organized labor and the New Deal. Annie and her trusted dog, Sandy, are looking for her parents before she ends up getting adopted by Daddy Warbucks. Annie sings the famous song Tomorrow as a way for her to focus on better days ahead. She knows tomorrow always brings hope.
Our country needs a little sunshine and hope as we march to the polls on November 8th. As we get closer to election day investors are getting jittery. The stock market volatility is increasing as investors look to hedge or sell most of their portfolio until the hard knocks pass. Short term, headline thinking is ruling the day and it may damage your long-term financial results.
When the sun does rise on Wednesday, we will have a new President of the United States of America. What will you do? Will this election have any bearing on your financial future? Will your financial goals change? Will you adjust your spending? Will your expenses go away? Will your retirement date change?
A thirty-year-old investor may experience eight to fifteen Presidents during her lifetime. Does it make sense for her to adjust her portfolio with each election? Maybe. However, it’s more important for her to focus on the things she can control like spending and saving.
Here are a few investment thoughts as we hurl towards the election.
1. Do not make any short term, irrational or emotional decisions because of what you read, see or hear on the election. Short term thinking will sink your long-term goals. In a study by Morningstar, investors earned 2.49% less than the mutual funds they owned over a ten-year period because of emotional trading decisions!
2. Missing the fifteen best trading days can also harm your returns. Per Dimensional Funds, an investor who adopted a buy and hold strategy from 1970 to 2015 averaged 10.27%. The investor who missed the fifteen best trading days during this time averaged 7.95% - a difference of 2.32%! The buy and hold investor investing $1,000 per year ended up with more than $780,000 while the investor who missed the fifteen best trading days ended up with about $380,000. Our buy and hold investor ended up with $400,000 more than our little market timer.
3. Asset allocation and diversification can be your best investing friends during times of market duress. A portfolio of large, small and international companies mixed in with bonds and cash will reduce your risk. An investor whose portfolio consists of 100% stocks, can reduce his risk by adding bonds. If he moved to an allocation of 60% stocks and 40% bonds, his risk exposure will drop by over 38%.
The election is going to come and go and markets will go up and down. I don’t know who is going to win or what the market will do but I know the sun will come up tomorrow!
I’m not giving up. Don’t you give up! ~ Daddy Warbucks
Bill Parrott is the President and CEO of Parrott Wealth Management. www.parrottwealth.com
October 29, 2016
 https://en.wikipedia.org/wiki/Little_Orphan_Annie, website accessed October 31, 2016.
 http://www.investopedia.com/articles/basics/10/how-to-avoid-emotional-in..., Kristina Zucchi, CFA, Investopedia, 9/27/2016.
 Dimensional Fund Advisors, Reacting Can Hurt Performance – 1970 to 2015, accessed October 31, 2016
 Morningstar Office, Portfolio Diversification and Performance presentation, accessed October 31, 2016.