Now that the US Presidential election results are in, what will this mean for your financial plan? Prior to the November 2020 elections, we shared some of our thoughts on how the outcome might impact your portfolio and plan. We acknowledged that the two major political parties in the United States have different approaches on fundamental issues that can affect the economy and markets, such as taxation, trade, and regulation. We also suggested that we may see some additional market volatility around the time of the election— which we saw play out. However, our bottom line was that regardless of the final outcome, the right long-term financial plan for you should remain essentially unchanged post-election.
What we still know is that on average stock markets have yielded positive returns under both Democratic and Republican presidents. The chart below, which shows the growth of a dollar invested in the S&P 500 since 1926, helps to illustrate that point.
So, what do we know now, and how do we expect that to play a role on financial markets in the coming years? Overall, we know a lot more today than we did a few weeks ago, though there are still some things that are yet to be officially determined. Sitting President Trump continues to challenge results that gave the Electoral College to Joe Biden, and there is still a runoff election for Senate seats in Georgia. The result of the Georgia runoff will help determine which party holds the Senate, and right now political prediction markets give the Republicans a roughly 80% chance to keep a Senate majority (source: PredictIt). This all means that as of today, it looks like we will have a gridlocked government with a Republican majority in Senate and a Democratically controlled House and Presidency. This might be a somewhat anticlimactic result that leaves many voters unsatisfied, and while the media may assign a negative connotation to gridlock, it’s a result that stock markets can get behind. A split government means there is less of a likelihood for dramatic policy changes and a higher likelihood that we maintain the status quo, making the future clearer for businesses and investors.
There are countless factors that play a role in stock market performance. One can even argue that some government policies can be more stock market-friendly than others. On balance, we can feel good knowing that just having less uncertainty can itself be a positive influence for businesses, markets, and investors. We will continue to learn more in the coming months and even if the highest probability outcome does not play out, our main point from our pre-election blog still stands. Businesses are resilient and will adjust to any changes around them, markets will react accordingly over time, and the appropriate long-term financial plan for you, centered around a diversified portfolio, will remain largely unchanged.
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Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
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