One Event Doesn’t Justify Making a Change

After putting the 2016 election in the books, I thought it would be a good idea to review why we shouldn’t let any single event drive our investment strategy — even if it’s the election of a president.

For instance, a few months ago, headlines started popping up:

  • “How To Invest If Hillary Clinton Wins the Election”
  • “How Presidential Elections Affect the Markets”
  • “Trump vs. Clinton: What the Election Means to Investors”

Logically, I understand why it would feel right to do something. After all, the media painted a pretty convincing picture about what a BIG DEAL this election would be. From foreign policy to your personal checkbook, it felt like the stakes were really high. You’d be foolish if you didn’t make a change to your investments, too.

But here’s the reality for this election, future elections, or any other single event. It just doesn’t make sense for you to react to these individual moments if you already have a well-designed portfolio.

Even as I write this, I know how hard it can be to ignore the noise when it feels like you should be doing something. I thought it might be helpful to look at some historical data.

To stick with the presidential theme, let’s review an analysis the Leuthold Group conducted on the S&P 500’s performance from 1928 to today, broken down by president.

S&P 500 Performance by Presidential Term, 1928 To Date

*Return measured from inauguration day to inauguration day, unless term end by death or resignation.

It’s interesting to see both the range of returns across presidents and the median numbers. Plus, think back to the events that took place during these different presidential terms. Did the market’s performance depend more on a particular president or the accumulation of events that happened during a presidency?

It’s something to think about the next time you see a headline or hear someone shouting that the next BIG THING TO HAPPEN should definitely mean making a change to your portfolio. Yes, things will happen, and sometimes those events will have an impact. But the idea that you should shake up an entire strategy just doesn’t make sense, and far from helping you, it could end up hurting you.

So let the talking heads keep talking and let the editors keep writing distracting headlines. But realize that most of the time, it has nothing to do with you and your well-designed portfolio.

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