Regardless of your own political beliefs and desires, come November 6 you must be prepared financially no matter how the chips fall. I’m not saying that President Obama will be re-elected. But there is at least a 50 per cent chance that this will happen. How might that impact financial markets? Does it make sense to adjust your investments now? Let’s take a look.
Granted, nobody knows what the stock market is going to do over any given time frame, but we can get a few hints if we look close enough. The stock market has been fairly strong over the last several months. That bodes well for Obama not having to find a new place to crash in January.
The market craves certainty. Whether you like it or not, the market has demonstrated some comfort level with our president. That’s why the market has shown some strength, and it would be reasonable to expect that performance to continue for some period of time should Obama get re-elected.
Of course, there are always other little problems, like potential wars in the Middle East, oil embargos, a recession in Europe, and a world-wide debt crisis to name a few. These events could dwarf the election decision and turn the market right on its head.
Regardless of who gets elected in November, bonds are a high-risk investment for most people right now. I say that for two reasons. First, interest rates are low—in fact, they are almost non-existent. That means rates have nowhere to go but up. And when interest rates rise, the value of bonds fall—and they fall fast.
The second reason I think bonds are a bad deal now is because our government has taken on monumental debt. President Obama probably doesn’t like this debt any more than you do. But he feels that it has been necessary to take on this debt in order to avert a total collapse of our system.
It’s likely that President Obama will take on more debt if the economy continues to stay stuck. If he does so, it will heat up inflationary forces, which will result in higher interest rates sooner or later. Either way, this is not good if you own bonds now. If you do, consider swapping out longer term bonds for shorter term securities.
Real estate looks pretty good under a second term for Obama. That’s because there are a variety of ways you could make money with property. If the market continues to languish, more and more people will be forced to become renters. That’s great for you if you own rental property. And if there is a recovery in housing, you should see some solid price increases for your real estate. It’s a win win.
If Obama is re-elected, it will have some impact on your investments, but it probably won’t be the deciding factor. The president has a lot less impact on your investments than other forces. Besides external events (over which you have no control), there are also the House and Senate elections to consider. Will a Democratic Congress be elected or will a Republican majority be put in office? How will the Executive and Legislature branches work together? The combination of events has a far greater impact on your money than any one isolated—albeit important—happening.
You can’t possibly know what the outcomes of these disparate events will be and you don’t have to. Rather than try to invest your money based on what you think may happen two months or two years down the road, chisel out a long-term investment strategy and stick with it.
Do I think the re-election of President Obama will impact investments? Over the short run, yes. But your investment strategy should be structured for long-term results and as in turn, my best advice is to ignore the election when it comes to making investment decisions.
What do you think? How will the markets respond if President Obama is re-elected? Are you making any changes now? Why or why not?
Neal Frankle is a Certified Financial Planner in Los Angeles. He is also an avid blogger and has recently written an extensive review of Scottrade on his blog WealthPilgrim.com.
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