How to Prepare Your Portfolio for the Upcoming Election

Oct 27, 2020 | Commentaries

Next Tuesday, United States citizens will go to the polls to decide who will be the next President of the United States. At Delegate, our job is not to “pick a side” or take a political view, but to advise our clients based on economic and investment changes that may occur as a result of a shift in power in Washington.

In this regard, our clients have asked us what to do to prepare their portfolios for the election and the potential after-effects. To the surprise of many, our response to this question is generally the same as our response to any other major global event: focus on your long-term objectives, don’t take any actions based on panic or short-term market movements, and unless your long-term planning outlook changes, generally “stay the course” with respect to your investment portfolio. To wit, we did not make any drastic changes to our quarterly asset class indicators for the fourth quarter. The reason for this is two-fold.

First, we don’t know how financial markets will react to a Biden presidency or a continuation of the Trump presidency. A potential Biden presidency is generally seen as favorable to markets because it may provide an increased level of government stability, likely greater stimulus to lower income earners, and possibly a more thoughtful response to COVID-19. Potentially unfavorable to markets, however, is the likelihood of a rollback or complete removal of Trump’s corporate tax cuts, which would likely pressure corporate earnings and equity valuations. A continued Trump presidency is seen as favorable to markets because the corporate tax cuts would almost certainly remain in place, but unfavorable due to the continued uncertainty and social instability that would likely continue.

The second reason why we believe staying the course is important is that the next few months will likely see increased volatility due to the election and what appears to be a new wave of COVID infections around the country (and the world).

Perhaps the best way to characterize 2020 is through Heraclitus’s philosophy that the only constant in life is change. For long-term investors such as our clients, being prepared to ride out the volatility associated with change, refraining from selling when markets tumble, and capitalizing on market dislocations when others panic are essential to meeting long-term investment objectives.

While our investment advice is to generally maintain your current portfolio positioning, a regime change in Washington often results in the changing of laws that may significantly affect tax and estate planning. A “Blue Wave” election resulting in a Biden victory and Democratic control of both houses of Congress is a significant change that could lead to relatively quick changes in tax law. In light of this possibility, we have been and will continue to be active in reviewing our clients’ estate and tax plans alongside their tax counsel to determine whether any changes are warranted. Just like planning for market volatility, reviewing estate and tax planning to ensure alignment with long-term objectives in anticipation of changes in tax law is important and is strongly encouraged.