Investing in Presidential Election Years

Should You Change Your Portfolio Prior to a Presidential Election?

One of the tenets of Modern Portfolio Theory is that markets are efficient and prices take into account all available information.

And, given that information moves at the speed of light, no one has an advantage unless they have insider information.

Information available to you, me, and the markets concerns the unprecedented election coming up.

The markets know that either Donald Trump or Hilary Clinton will be the next president and what each candidate has in mind for the country.

Might there be some short-term activity in the market after the election results are in?  Of course.

Should investors make changes to their portfolio in anticipation the election of one candidate or another?

Trying to outguess the market is a losing game.

While unanticipated future events—surprises relative to those expectations—may trigger price changes in the future, the nature of these surprises cannot be known by investors today.

As a result, it is difficult, if not impossible, to outguess the market.

This suggests it is unlikely that investors can gain an edge by attempting to predict what will happen to the stock market after a presidential election.

Equity markets can help investors grow their assets, but investing is a long-term endeavor.

Trying to make investment decisions based upon the outcome of presidential elections is unlikely to result in reliable excess returns for investors.

At best, any positive outcome based on such a strategy will likely be the result of random luck. At worst, it can lead to costly mistakes.

Accordingly, there is a strong case for investors to rely on patience and portfolio structure, rather than trying to outguess the market, in order to pursue investment returns.

See the below short slide presentation from Dimensional Fund Advisors: