Voters line the hall as early voting begins for the midterm elections at the Citizens Service Center in Columbus, Georgia on October 17, 2022.
Cheney Orr | Reuters
Investment advisers say it’s not wise to try to time the market, but it makes sense to periodically adjust your portfolio. So, with the midterm elections a week away, but the outcome still not in place, does it make sense to make those adjustments now?
Probably not, say most financial advisors.
“Investing based on political beliefs or what you think can happen politically is an emotional decision, and emotional decisions in investing tend not to work very well,” said certified financial planner Shaun Melby, founder of Melby Wealth Management, based in Nashville, Tennessee. .
It stands for the Point Bridge America First ETF, which trades under the symbol MAGA and has been marketed as a way to invest in businesses that align with Republican beliefs. From its inception on September 7, 2017 until election night on November 3, 2020, MAGA returned 6.85%, while the S&P 500 ETF TO SPY returned 36.10% over the same period, according to Tradeweb.
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Impact of elections, political results change targets
There is also uncertainty in the outcome. While polls suggest Democrats could lose control of Congress, polls are not elections. And even if you predicted the outcome of the vote, you could still be wrong about its impact.
“As with many stock market events, you can be 100% right about the timing or the outcome, but be wrong about its impact on the stock market,” said Kevin J. Brady, CFP and New York-based vice president at Wealthspire Advisors. “It doesn’t really matter which political party is in power, it’s just that there are more predictable outcomes.”
Policy outcomes are also a moving target, making it difficult to invest in what you think might happen.
“Policies are quite difficult to put in place, so you usually have a pretty good lead time to deal with those policies,” said Taylor Sutherland, senior wealth adviser at Halbert Hargrove, ranked #8 on CNBC 2022 List FA 100.
“Policies often change until they’re done,” he added, pointing to President Joe Biden’s infrastructure bill, which started out as a $3 trillion proposal but s is over at $1 trillion, with many changes in the details.
Financial advisors say it’s best to adjust your portfolio based on your financial goals and not on the outcome of an event. And it is better to consider the global economic outlook.
Sutherland says his company adjusted portfolios from late 2021 to early 2022 as economic signals changed and inflation started to rise. “These signals told us it was time to be defensive,” he said. “So we swapped stocks for cash for part of our client’s portfolio, and we’ve held that position all year.”
The market has a “very distinct” mid-term pattern
Historically, stocks tend to do better after the midterm elections. In 17 of the 19 midterm elections held since 1946, stocks have performed better in the six months after the election than in the six months before.
“If you look at the history of this, the market has a very distinct trading pattern in midterm election years, where the first six to nine months tend to be very choppy,” said Philip Orlando, Senior Vice President and Chief Equity Market Strategist. in Pittsburgh Federated Hermes.
The party that controls the White House usually loses seats. If we get a similar result this year and the government is split, Orlando says the stock market could stage a 15-20% recovery in the spring. But there will be time to adjust after Nov. 8 and the economic results and outlook are clearer.
“This can be an interesting time to start buying high-quality, oversold growth stocks,” Orlando said.