Explosive political headlines will continue as the election nears. The cacophony of voices creates a feeling that something must be done. In such times, the best investment strategy is to keep calm and invest on.
Every four years, some investors insist on avoiding risk until after the election. History suggests this is a mistake. Even when volatility has increased, some calm typically returns before election day.
Regardless of the outcome, the mood in America is for more government spending. There has been nothing on the campaign trail by either candidate to suggest otherwise.
More government debt will be needed to pay for these record deficits. The interest on this debt is concerning. It will eventually have consequences: (1) inflation, (2) slower growth, or (3) higher taxes.
Staying ahead of inflation is one of the top goals of an investment portfolio. Fortunately, financial assets like stocks have done a good job over the long term against inflation. Corporations simply raise their prices.
What can be done to protect oneself from the possibility of more government interest and less productive spending down the road? Be smart with personal debt. Pay it down, especially loans at higher rates.
What if tax rates rise in the future? There are many options, from Roth to tax-managed accounts. The financial advisors at SFS can help answer this question.
In the last 50 years, the United States has had 12 presidential elections and 9 different presidents. Over the same time, Americans have progressed through 17 recessions. We survived double-digit inflation of the 1970s and 1980s, the stock crash of 1987, bursting of the Dot-Com bubble, September 11th terrorist attacks, the Great Recession of 2008, and a global pandemic. We have had countless wars. Despite all this and more, the S&P 500 has averaged over 10% per year for 50 years! That’s amazing!
People have also been incredibly innovative. Smartphones allow us to connect to the internet and to friends anywhere, at any time. We can call a taxi or order groceries at the touch of a button. We stream books, music, and movies wherever we go. We are developing self-driving cars, civilian space flights, and medical marvels. Despite all the challenges, there is also an abundance of progress.
Listen to a deep dive into investing through elections on the Power Up Wealth podcast.
