September 2016

As the summer heat dissipates and kids head back to school, we look ahead in anticipation of what's sure to be an exceptional remainder of the year. Regardless of your political leanings, you must admit (and hope) this election is an aberration. In my discussions with clients, friends, and family members, not one can remember a populace so divided across the partisan idealogical trenches and immovable in their beliefs and opinions.

Our reality is that we have been given the choice between a cynical, unscrupulous former First Lady who under normal circumstances shouldn't operate a cash register, and a bombastic, narcissistic reality TV star that cannot speak in a complete paragraph. All during what's widely acknowledged to be a critical juncture for the future of the Union. 

Regardless of where you stand, expect to be morbidly entertained by the vitriol, propaganda, and chicanery yet to be witnessed before election day. It's going to get ugly. 

But because this is ostensibly a financial commentary piece due to the fact that it's produced by a financial services firm, let's address the questions most frequently asked: "What are the markets going to do?" and "What should we do to prepare?"  

The answer I'm inclined to provide to the former is the same answer to any question I'm posed about the short or intermediate behavior of the stock market: "Nobody knows. And anybody that says they know for certain is either getting paid to tell you that or is a fool." Especially this year. In the near term, the movement of the market is driven purely by collective psychology. 

To the latter question, as to how to prepare in the short and intermediate term for any positive, negative, or muted reaction to the presidential election, my recommendation is this: Stick to your plan. 

How much personal control do you have over the outcome of the election? None.
How much personal control do you have over the direction of the stock market? None.
How valuable are any predictions about the supposed direction of the stock market post-election? Not at all.

This election and the subsequent inauguration of our next president will affect your personal financial plan only to the extent to which you allow it to be affected. That is to say, any attempt to predict the near future and allow short term developments to direct your long term planning is a failing strategy. 

Without changing the strategy, one tactical response would be to hold a reasonable amount of "dry powder," or simply begin to accumulate cash ready to deploy in case the market gives us the opportunity to buy good investments at a substantial discount. This amount should be excluded from any emergency savings or savings allocated to a particular goal (don't raid Jr.'s college fund).

Continue to fund your long-term investments through your employer's retirement plan or your personal accounts as you already should be doing. That covers you in the likely case the stock market continues to appreciate, or moves sideways.

And in the less likely case the market goes down, having cash will allow you to be financially and psychologically prepared. You'll be less likely to need money from your investment accounts, which will need to be sold at depreciated values, and you'll be steadfastly and faithfully awaiting the market's recovery and avoiding the devastating effects of selling into a falling market. Possibly, you'll even take advantage of any opportunity the market gives you to buy things when they go on sale by investing your surplus cash at regular intervals.

There you go. You are now fully prepared - at least financially - to survive the coming months with total ambivalence to the daily noise regarding the stock market. Instead, you can reserve your fascination for the circus the next two months are sure to be. Try to enjoy the ride.