The unusual opportunity of the U.S. election

‘But this time is different’

It’s fair to say that this election presents some unusual circumstances for the markets. While we hear “But this time is different” with every presidential election, there’s a grain of truth in the assertion this time around. The backdrop of 2020, with a pandemic that presents global economies with their greatest challenge in decades, gives the phrase particular resonance. So does the prospect that, given significant numbers of Americans may opt to vote by mail in response to the pandemic, we may not immediately learn who has been elected president.

Such a scenario would push uncertainty to another level—and make our investing principles all the more important. But what is best for portfolios is no different from past election cycles. Hastily changing course, making portfolio changes in response to short-term events, doesn’t work, even in unusual circumstances.

Those who would advocate making portfolio adjustments based on candidates’ proposals would be well-served to consider that the policy proposed today may look very different from the policy eventually implemented—if it is implemented at all. Investors who aim to get ahead of developments not only have to correctly predict election outcomes, they also have to correctly assess which policies may be implemented and how they may play out in the markets in relation to other policies. It’s a calculus that challenges even professional money managers.

Those worried about potential election-related volatility need to remember that volatility works in two directions, that the best and worst trading days frequently happen in proximity to each other, and that correctly timing a market exit can be counterproductive if you don’t also correctly time a return to the market.

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