How Will The Election Affect The Stock Market?
How is the election going to affect the stock market? That’s a very popular question right now at Bertram Financial.
I’ve heard people’s hate and fears from both sides, worried that if Trump or Biden is elected that there will be a big unknown with the stock market.
It doesn’t matter what side of the aisle you’re on, there’s a lot of fear concerning the election and how it will affect the stock market.
There are also a lot of articles circulating right now discussing how the market will perform depending on which party is in office or will it be better for the market if the incumbent candidate wins?
There are all kinds of stories and speculation out there right now, but here’s what I can tell you, nobody knows exactly what’s going to happen with the market. Anyone who tells you that they do know is lying. That’s the truth of it.
How Will The Election Affect My Retirement?
We do tend to see more volatility in an election year and I think a lot of that is because of the uncertainty. Since nobody knows what’s going to happen, that uncertainty can sometimes affect the market more than anything. However, once the election has passed and the candidate is confirmed, the market will become a bit more stable because there is at least some idea of the path that the candidate is looking to take for the market and how that will affect everything.
Now this year has been a little bit different. There’s been uncertainty all year and since the March correction, the market really kind of took off. Although we have seen some volatility in the last few months, and I’m thinking we might continue to see that through the election, a better question to ask is, “How is the election going to affect the market?” You should also ask yourself if you know how your investments are set up and will you be okay no matter what happens with the market?
Will My Portfolio Be Okay?
This is one of the things that Warren Buffet says. He says that you need to make sure that you’ve invested in a way that whether the market goes up, down, or stays the same, you’re okay.
The problem is that most people don’t understand what type of risk they have and how their portfolios correlated.
Sometimes we think I just have all these different accounts and funds so I’m diversified and if I’m diversified then I’m safe, right?
This means that if one goes up, the other one is going up and if one goes down, then the other goes down.
Now sometimes you might be like me and think that it sounds too detailed, but you don’t necessarily have to get into all of the details, but you should have somebody who can tell you how correlated your accounts are and what kind of risk you can expect.
Developing A Solid Retirement Strategy
We encourage all our clients to stop measuring your accounts based on the benchmark they see from entities like the S&P 500 or the Dow Jones. Instead, create your own personal benchmark.
I want to help you do this right now, so grab a pen and paper, and let’s quickly do an exercise.
I want you to think about the average rate of return each year that you would be happy with. We do have to remain realistic, so I don’t want you to put 20%, or even 10%, as it seems a little high. Think about what the average rate of return that you would expect or would like to see from your portfolio.
Once you put that number down I want you to figure out what your “Uncle” point is.
Do you remember playing that game as a kid? Someone would be tickling you and once reached the point where you couldn’t handle it anymore you would yell “Uncle!”
We’re applying that same strategy here. How much could you lose before you hit your “Uncle” point?
When you’re thinking about this I want you to think about it in dollar amounts rather than percentages. It is easy to say 20%, but that could be a huge loss if you haven’t done the math.
For example, a 30% loss on $100,000 is $30,000! Is that a loss you are prepared to see? If you have $500,000, then the 30% loss is $150,000!
So I want you to put a dollar amount here. At what dollar amount would no longer be able to lose any more money?
Once you have written the first two parts down, this final question is very important. I’ll ask you, which one is most important to you? Seeing that return on your investment every single year or knowing that you’ll never take a larger loss than that amount you set.
Sometimes we walk through this with people and we find that they are actually willing to settle for a little less of a return if it means that they can make sure they won’t see a large loss.
Once you’ve answered these questions you need to make sure that your manager or advisor is managing your accounts no to beat the S&P 500 benchmark but developing a strategy to beat your own personal benchmark. This is how you know that you’ll be okay regardless of what may happen with the stock market.
If your current manager or advisor is unable to help you to create those personal benchmarks, then it might be time to at least talk to another advisor because the questions from the exercise above are questions that I’d encourage you to ask. Set a personal benchmark and hold anyone who is managing your money to that benchmark, not anything else.
I have one final thought that I’d like to share. Investment positioning is what we’re talking about and how the stock market affects you and your investment positioning.
But investments can affect every other area of your financial life. It can affect your taxes, your cash flow, your retirement income, etc.
At Bertram Financial we have a webinar called Dream Retirement 101 webinar where we talk through how to make sure that all areas are coordinated and working together for you.
Regardless of who wins in November, what I do know is you can make sure you’re okay either way. Check out that Dream Retirement video and let us know if you have any questions
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