Trump vs Clinton – Implications for your Portfolio

After what seems like a long and bitter battle for the White House, the decision as to who will become the next president of the United States is due on Tuesday 8 November 2016.

But what implications does the result have for your investment portfolio?

Vanguard research has looked at decades of historical data and concluded that presidential elections typically don’t have a long-term effect on market performance.

The effect that elections typically have is increased volatility as it adds to the uncertainty surrounding stocks and shares, however, volatility typically stops increasing shortly after election day.

Source: Vanguard Research, 2016

But what about who wins? Does the market prefer Democrats to Republicans or vice versa? Looking at data from 1853 to the present day, average annual equity market returns are almost identical no matter which party is in office.

Source: Vanguard Research, 2016

Does this mean the result of the election doesn’t matter? Not entirely true as markets will almost certainly react, but we can’t predict that reaction. The good news is, that in terms of the long-term view, no matter who wins, companies will continue to find a way to make money.

What should we focus on?

So if you shouldn’t react to the US election, what should be the focus? My suggestion is that when managing an investment portfolio the most important aspects to focus on are:

So, all those predictions from economists and fund managers that are based on making predictions are just more ‘noise’ to make them feel like they are being active and adding value.

If you know of someone who’s investment portfolio is being managed based on short term ‘noise’ and would like to explore a different way of working, please do get in contact.