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November 11, 2020


Behavioral Finance

Elections and Investing – Lessons to Remember

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It hasn’t even been two whole weeks since the 2020 election, and guess what? The markets didn’t crash. Even in the midst of a contested election that appears to be headed for the courts, the markets haven’t crashed.

Leading up to the election, there was speculation on all sides about what the outcome of the election would do to the markets. Statements like, “If _______ gets elected, the market is going to tank!” are thrown around with such certainty that it almost felt like fact. Every election cycle I always get the same question. “With the uncertainty of the election coming up, should we just sell and wait until it is over?” Let’s just assume you did that this year. Let’s say you sold at the close the day before the election and bought back in when the election results were called that Joe Biden had won (media outlets declared the winner on 11/07, so the first opportunity to buy was Monday 11/09 at the open). The chart below shows the change in the S&P 500 during that timeframe.

S&P 500 Pre-Election to Post Election 11/02/2020 to 11/09/2020

Attempting to predict the outcome of the election, in addition to the market reaction to said outcome, could make for an interesting discussion. However, following through with major portfolio shifts based on those predictions could impact your long-term financial goals.

With all the uncertainty this year has brought there is one thing I feel confident in predicting. I can close my eyes and vividly picture it. The year is 2024. My kids Emmy and Harvey are 6 and 7 years old respectively. The gray hairs they have blessed me with have gone from few to many and once again we begin approaching election 2024.

The comments typically start in January/February and sound something like… “This year could be crazy because we have an election coming up.” As summer rolls around, the comments turn into questions like, “What should we be doing to prepare for the election?” As the political ads and unsolicited text messages and annoying calls from both sides of the aisle start to flood our life, the questions start turning into predictions… “If ______ wins, _______ WILL happen.” September/October will turn into a media frenzy with talking heads on TV spouting their predictions of what will happen to the markets based on the outcome of the upcoming election. The only thing we know for certain is that the election will happen, the outcome will be the outcome, the majority of predictions will be wrong, and life will continue on.

Dear Future Me,

I have heard of people writing a letter to themselves in the future. In fact, in researching for this article, I discovered that there is an actual website called Futureme.org that allows writers to write public letters to themselves. I figured now is a better time than ever to reflect on what we just went through and write a letter to future me. So, what are a few things that we have learned this go around that might be useful to remember 4 years from now when the same questions are thrown around. Here we go.

Dear 2024 Future Johnathan,

I hope you are reading this in happiness and good health. This brief letter will serve as a reminder of a few lessons learned about elections and investing. Just some bullet points to keep in mind as the season rolls around.

1. Media outlets are a business. Their goal is to sell ads. Clickbait is a real thing. Try to avoid the noise.

2. As I write this in November 2020, we are in the middle of a global pandemic facing an increase in coronavirus cases as we head into what some believe will be a very difficult winter including a second wave of the virus. The election is still contested. Millions of people are unemployed and first-time claims for unemployment insurance was over 750,000 for the last week of October*. A vaccine has been created; however, production and distribution are likely months away. Our government has been debating additional relief measures for weeks with no resolution in sight. With all of this going on… The market is near all-time highs. Take from that what you will, but unless you are dealing with more challenging circumstances, the outcome of your election probably won’t create the noise that TV or social media believe it will.

3. When filling out anything political, DO NOT use your actual cell phone. You will be bombarded with texts and calls.

4. Profits, not politics, drive markets.

5. No matter what the outcome of your election is in 2024, things will be ok. Life will go on.

6. Manage investments based on financial goals and not election noise.

7. Whatever is going on in the 2024 world, remember the days of COVID, lockdowns, civil unrest, toilet paper shortages, a sample-less Costco, a Super Bowl losing 49er team that is decimated by injuries with no hope of returning to the big game. Remember that through all of that, the world still made it through. The markets made it through. 2020 reminded you of the things that matter… Health, Family, Clients, Happiness and Laughter.

Life’s too short, laugh as much as possible.

– 2020 You

PS, I hope Harvey and Emmy are letting you and Melissa sleep more.

I look forward to rereading this in 4 years.

*Source: US Labor Department

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.orgwww.SIPC.org.

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