Morningstar Investor users sign in here.

Video

The 2020 election and your portfolio

The bumps and bruises of election time may tempt you to shift your portfolio strategy.  

Co-Author | Susan Dziubinski


Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. The election is right around the corner. Should investors be thinking about making any changes to their portfolios as a result? Joining me here today to explore the topic is Christine Benz. Christine is Morningstar's Director of Personal Finance.

Christine, thanks for being here today.

Christine Benz: Susan, it's great to be here.

Dziubinski: Oftentimes when people talk about elections, they talk about how well the stock market has historically performed under a Democratic administration or Republican administration. Is that something worth doing, exploring that question?

Benz: Well probably not. Because when you look at the data on how the market has performed in various regimes, what you see is that the data are all over the map in terms of whether the market tends to perform well under Republican presidents or Democratic presidents. So I wouldn't rely on that as a gauge.

Then I think when you take an even wider view, what you have to realize is that who is president is but a small determinant of how the market behaves. Right now we're contending with some really large forces beyond politics—we've got this pandemic, we're in the midst of a recession, we still have quite high unemployment, we have very low interest rates, we have not-cheap equity valuations. So it's all mixed together in determining how the market will behave in the future. So I really think that investors shouldn't get caught up in terms of trying to position their portfolios to benefit, or potentially to protect them from one president or the other taking office.

Dziubinski: What about elections and market volatility? I mean, considering the uncertainty, is volatility something investors should be bracing themselves for?

Benz: Well, I do think that that is something investors should be thinking about. We have experienced some volatility recently in some of the technology stocks, but I do expect that we will see probably more volatility as we get closer to the election.

For one thing, when you look at the data on polling, it's really quite tight. So my guess is that whoever wins this election, there will be kind of a surprise factor. So there will be an opportunity for some dramatic ups and downs around the final outcome. But I also come back to that phrase you often hear about how the market really doesn't like uncertainty. Right now we have a lot of uncertainty and we may have uncertainty even on and after Election Day, because it sounds like it may take a while to count some of the votes coming in. So investors should brace themselves for volatility. I would expect to see more volatility in the next couple of months as we sort all of this out.

Dziubinski: So Christine, if the market goes up a lot prior to and through the election, or down a bit through that same period, investors shouldn't make too much of it?

Benz: I don't think so, because sometimes you do see these dramatic moves. If you'll remember right after President Trump was elected, we had an initial significant downdraft in the market, then it recovered. We had some strong returns for a period there and then volatility as the pandemic came on. So I wouldn't make too much of volatility in the months around the election. I would expect some of it, and it may not foretell how the market will perform over the president's whole tenure. So I wouldn't get too worked up about volatility in these coming months.

Dziubinski: So lastly then, is there really anything investors should be doing at this point with their portfolios?

Benz: I really liked the idea of bringing it back to your plan, bringing it back to the policies that you have for your plan. So I love the idea of investors working with an investment policy statement, or some kind of blueprint that guides how they position their portfolios and guides when they make changes. For a lot of investors, they've probably been fairly hands-off through their portfolios through this period. The data suggests that in fact, they have—we haven't seen investors flee from stocks, despite some of the volatility that we experienced during the first quarter. But I would say, bring it back to that plan, bring it back to your asset-allocation target.

If you have an asset-allocation target, you may in fact be wanting to trim stocks, especially if you're getting close to retirement. Similarly, many investors haven't addressed their portfolios' exposures with international stocks relative to US. Take a look at where you are in your positioning geographically, relative to your targets. Also take a look at where you stand on the value-to-growth spectrum. There's another area where many investors have been hands-off with their portfolios, all too willing to let their growth stocks drift up. Take a look at your portfolio’s positioning on a bottom-up basis and consider rebalancing back to your policy positions.
I think that that's probably the best course of action for most investors at this juncture.

Dziubinski: So let your own policy drive your portfolio even today.

Benz: Exactly.

Dziubinski: Christine, thanks so much for your time, we appreciate it.

Benz: Thank you, Susan.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.



© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

More from Morningstar

Bank results: the winners and losers
Video

Bank results: the winners and losers

Morningstar analyst Nathan Zaia explains how the banks did and what the future holds.
How to deal with financial stress
Video

How to deal with financial stress

More high-income earners are now also experiencing financial stress. We go through practical ways to reduce it
UniSuper CIO John Pearce on why the 60/40 portfolio is far from dead
Video

UniSuper CIO John Pearce on why the 60/40 portfolio is far from dead

The $130 Billion SuperFund Manager also talks about how he sees risk, his recent investments, and why history isn’t a good guide to the future.
Incitec Pivot: explosive upside ahead?
Video

Incitec Pivot: explosive upside ahead?

Morningstar analyst Mark Taylor believes imminent growth in explosives earnings could lift sentiment.
Why Morningstar see opportunities in coal stocks
Video

Why Morningstar see opportunities in coal stocks

Analyst Jon Mills explains why he’s recently increased fair value estimates for Australian coal companies.
Is the sharp fall in ResMed's share price justified?
Video

Is the sharp fall in ResMed's share price justified?

The potential for weight loss drugs to impact the sleep apnea giant has weighed on the share price, though Morningstar analyst Shane Ponraj thinks...