What Difference Will ‘The Donald’ Make to My Portfolio? - Brett Investment
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Donald Trump

What Difference Will ‘The Donald’ Make to My Portfolio?

What Difference Will ‘The Donald’ Make to My Portfolio?

Well the unthinkable has happened and Donald Trump has become US President winning one of the most acrimonious (and ugly) presidential election battles in recent history. Who would have guessed such an outcome 12 months ago…

You might think that the outcome of the election will lead to some big shifts in our investment strategy, but it will not. Here’s why.

It will be of no surprise to hear me repeat that trying to outguess the market is often a losing game, as current market prices offer an up-to-the-minute snapshot of the aggregate expectations of market participants. This includes expectations about the outcome and impact of elections. In short we believe it is unlikely that investors can gain an edge by attempting to predict what effect the election will have on markets.

Market Impact is small

Indeed the market impact of presidential elections is smaller than you might think.

Predictions about presidential elections and the stock market often focus on which party or candidate will be “better for the market” over the long run. The graph below shows the growth of one dollar invested in the S&P 500 Index over nine decades and 15 presidencies (from Coolidge to Obama).

us-presidential

This data does not suggest an obvious pattern of stock market performance based upon which party holds the Oval Office. The key takeaway here is that over the long run, the market has provided substantial returns regardless of who controlled the executive branch.

Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.

This result is because the stock market is powered not only by decisions made by political leaders, but by a complex blend of (among other things) commerce, enterprise, risk, finance, hard work and innovation. Did you know, for example, that the number of US patents granted in the US since the 1960s has tripled? It is no wonder that markets thrive, regardless of political regimes, and will continue to efficiently allocate capital for innovation, progress and profit.

It is reasonable to apply the same long-term thinking to other markets and other big macro events, such as Britain’s exit from the EU and leadership changes elsewhere in the region. We do not know what the outcome or effect of these events will be, but we do know that markets reward patient and disciplined investors.

OUR CONCLUSION  

The key to growing your assets is simply to be in the market long‑term. Trying to make investment decisions based upon a presidential election result is unlikely to create reliable excess returns for you. At best, any positive outcome based on such a strategy will likely be the result of random luck. At worst, it can lead to costly mistakes. Better instead to base your future prosperity on wise portfolio structure, low costs and most important of all the discipline and patience to stay in the market.

Source: Dimensional Fund Advisors

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.

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