By Chuck Carroll, CFA, CAIA
Chief Investment Officer
TFO Family Office Partners
Tonight, our country will focus on our electoral process of determining our next President, and other legislators who will shape our country for the next 2-4 years. Elections have been a foundational and fundamental element of our democracy for almost 250 years. They can also be polarizing and stressful, as those with strong opinions find themselves at odds with fellow Americans who hold opposing views.
It’s natural for those passionate about a candidate or a political party to perceive a connection between election results and the future performance of the stock market. After all, each of us hopes that our preferred candidate wins, and we all hope the stock market goes up. So, it feels natural to associate the two outcomes in our minds. But if we look more deeply at history, we see that the stock market hasn’t shown much preference for one political party or the other over the past 98 years.
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. Data presented in the growth of $1 chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment. Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
At a fundamental level, the purpose of investing is to grow our wealth by participating in capitalism. When we invest in the stock market, we are not investing in politicians; we are buying shares of companies that entitle us to the future profits of those companies. Companies earn those profits by creating goods and providing services that help people solve problems. Auto manufacturers earn profits by helping us get around; pharmaceutical companies earn profits by creating medicines that save lives; and software companies earn profits by helping us complete tasks more efficiently. The innovation and knowledge necessary to design, distribute and continuously improve those products and services have never depended on who resides in the White House or controls Congress.
When we wake up tomorrow, or whenever the results of the election are known, we’ll likely be confronted by speculation in the media about which companies, sectors, and markets will perform best under the new administration. We urge you to tune out that noise and instead focus on what nearly 100 years of data and science tell us about the stock market:
• Expect volatility: The stock market can be quite volatile, particularly in the short-term as investor sentiment and emotions swing stock prices. But predicting the future sentiment of millions of investors around the world is remarkably difficult to do, and the costs of getting it wrong can be incredibly high.
• Expect the stock market to rise, over time: Whether we are talking about one day, one month or one decade, the stock market historically goes up more often than it goes down. That is a logical outcome for accepting the uncertainty described above, as investors should expect to be compensated in the form of higher expected returns. The volatility of the stock market should be viewed as a feature of the markets, not a flaw or a bug.
• Expectations, not current events, drive stock prices: The price of a stock today doesn’t reflect what has happened; it reflects what investors think will happen in the future. If most investors agree that something is likely to happen in the future (e.g., the Fed will cut interest rates, AI will become more prevalent in our society, etc.), those expectations are already reflected in current prices and don’t represent an opportunity for outsized future returns.
• Your goals and circumstances are the most important elements of your investment plan: There is no universal prescription for an optimal portfolio. The optimal allocation for you considers what you have, who you are, and where you want to go financially. Don’t look to the media, your peers, or salespeople for generic recommendations about how you should invest your family’s precious capital.
When the results of tonight’s election are known, roughly half of America will be disappointed. If you happen to be in that group, remember that global capitalism will continue to press on, no matter who is in the White House. We believe the future innovations that come from those capitalistic endeavors will likely continue to create profits for those who own a diversified portfolio of stocks and have the patience to hold those investments for the long-term.
As always, please feel free to connect with any member of your TFO team if you have questions.
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Important Disclosures
These views are those of TFO Family Office Partners (“TFO”) and should not be construed as investment advice.
Advisory services are provided by TFO, an SEC registered investment adviser. Registration as an investment advisor does not constitute an endorsement of the firm by the Securities Exchange Commission or any other securities regulator and does not mean the advisor has attained a particular level of skill or ability. TFO only transacts business in states where it is properly notice filed or excluded or exempted from notice filing requirements. A copy of TFOs’ current Relationship Summary and written disclosure statement discussing its business operations, services, and fees is available upon request from TFO or by going to the SEC’s website (www.adviserinfo.gov).
This content was prepared by TFO and is provided for informational purposes only. The chart was sourced from Dimensional Fund Advisors and the post contains data from third party sources. Although TFO believes these sources to be reliable it makes no representations as to their accuracy or completeness. The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect your specific circumstances. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Furthermore, this post may contain certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially. As such, there is no guarantee that any views and opinions expressed herein will come to pass. The information discussed is intended to serve as a basis for further discussion with your financial, legal, tax and/or accounting advisors. It is not a substitute for competent advice from these advisors. TFO or its advisors are not authorized to practice law or provide legal advice. If a numerical analysis is shown, the results are neither guarantees nor projections, and actual results may differ significantly. Any assumptions as to interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only. Rates of return shown are not indicative of any particular investment and will vary over time. Any reference to past performance is not indicative of future results and should not be taken as a guaranteed projection of actual returns from any recommended investment.
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