Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
The coming Presidential election is among the most anticipated in recent memory. The issues are big and urgent, voters are worried and angry and the differences between the candidates are sharp.
While political junkies are in heaven right now, investors are in, well, not heaven. The uncertainty generated by the election has stymied both business activity and investment markets.
Regardless of the outcome, the markets will be relieved once the election is over.
Once the votes have been counted, business leaders and investors will have at least a broad sense of where the government is headed on fiscal policy and other key issues such as regulation and taxes. Whether investors agree or disagree with the winner’s policies, they will welcome the certainty and begin to make decisions accordingly.
Win some, lose some
No matter who wins the election there will be winners and losers among industries and sectors. A quick look at some of the largest contributors to each campaign might provide some insight on how various industries think they will fare under either an Obama or Romney administration.
For example, the top 10 corporate contributors to GOP challenger Mitt Romney’s campaign includes Goldman Sachs, Morgan Stanley, JPMorgan and Barclays, followed closely by Citi and Merrill Lynch.
President Obama’s list of biggest donors includes several tech and health care firms such as Google, Kaiser Permanente, Microsoft and IBM.
So it appears that banks and financial institutions expect to do well under Romney while health care and some technology firms seem to have a more vested interest in Obama. Expect to see increased spending and investment from those sectors that backed the eventual winner.
One of my favorite research firms (Strategas Research Partners) has put together two baskets of stocks – one designed to excel if the GOP dominates the election, the other built to capitalize on a Democratic victory. It’s no shocker to see hospital and Medicaid HMO companies, along with alternative energy and small telecom companies in the Democratic basket. Financial and energy companies top the list if we see Republicans take over — reinforcing what we learned from the donor lists.
The relative return on each of the Strategas baskets has closely tracked the candidates’ recent ups and downs. When President Obama surged in the polls after the Democratic National Convention, the Democratic portfolio began to outperform the Republican basket.
Conversely, after the President’s debate performance, the Republican portfolio begin outperforming the Democratic basket. We also saw the Financial and Energy ETFs outperforming the S&P as the Republicans gained a surge of confidence.
Diversification still the key
So, how should you prepare for the post-election economy?
Well, Presidents come and go, but solid financial advice never changes and “think long-term and diversify” is about as solid as it gets.
The “buzz” on Wall Street says a Romney win will give the markets a bump, while an Obama victory might be a drag on stock prices, but that effect will be short-lived.
Yes, the next President will heavily influence policies that impact business and finance. There will, indeed, be winners and losers based on those policies. But this has been the case for more than 200 years, during which the nation and its economy have moved steadily onward and upward.
A diversified portfolio provides the best possible long-term position no matter which candidate wins. Some strategic tweaks might be necessary depending on November’s outcome, but companies like Procter & Gamble, AT&T and Johnson & Johnson will continue to pay dividends no matter who is in office.
And because the majority of individuals’ assets tend to be invested in retirement accounts, dividend and capital gains tax decisions are less of an issue.
Emotions are running high in this election, but there is no place for emotion in a successful financial strategy. Be as passionate as you like about your candidate. That’s healthy for you and the country. But when it comes time to make financial plans, don’t let your short-term emotions throw your long-term plans off track.
In four or eight years Obama and Romney will be history, but your thoughtfully crafted portfolio will still have center stage in your life.
– Wes Moss, for AJC Atlanta Bargain Hunter blog