With the U.S. presidential election called, and promising news of a COVID-19 vaccine announced, a U.S. market surge reminds us how keen investors are for a sense of closure.
That said, who knows how long the mood will last? Come what may between the U.S. presidential election just ended and the inauguration yet to occur, the results will undoubtedly be attention-grabbing and action-packed. Social media and the popular press will see to that, as they feed on – and are fed by – our fascination over breaking news.
To counter all the excitement, we offer three calming insights:
(1) Cause and effect are rarely as direct as we might hope or fear. Please apply this point to any temptation you may be feeling to alter your investments because “X” has just happened, or in case “Y” seems about to. As the election plays out, pundits will be proclaiming they can predict how the markets will respond to new socioeconomic policies coming out of a new administration. At least in terms of tomorrow’s market prices, they do not know. They cannot know. There are simply far too many interacting interests to make the call.
(2) It’s much easier to explain an outcome than to predict it. In this Forbes column, the author describes how scientists have detailed models for explaining why volcanoes occur. But they still cannot predict each eruption. The same can be said for financial markets. We have excellent models for explaining a market’s overall factors and forces. But our ability to predict its individual events or specific moves remains as elusive as ever.
(3) Elections come and go. Your investments last a lifetime. As U.S. voters, we have the opportunity to select our next president every four years. As investors, we are best served by measuring the balance of power in our portfolio across decades rather than years. As Dimensional Fund Advisors has demonstrated in this excellent illustration, “for nearly 100 years of US presidential terms [the data] shows a consistent upward march for US equities regardless of the administration in place.”
In other words, politics aside, your best chance for achieving your personal financial goals remains the same: Continue to give your investments ample time and space to benefit from the market forces just described. As we move forward together, we hope you continue living according to your values, but heed this valuable advice about your lifetime investments. Stay the course!