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November 5, 2024


Dear Joanna,


As American voters cast their ballots today, there's a palpable tension in the air. The New York Times captures the national mood, reporting that voters across the political spectrum are heading to polls with a sense that their nation is coming undone. This anxiety is real and understandable.


Yet amid this uncertainty, one truth remains unchanged: the connection between elections and market performance isn't as straightforward as pundits would have you believe. While leadership matters, no single person - not even the president - can control our $50 trillion stock market or our $28 trillion economy.


This newsletter's message about voting with your ballot, not your portfolio, remains more relevant than ever.


But beyond the investment perspective, I'm thinking about how I'll manage my well-being during these charged times. Tonight, we will find comfort in the community - getting together with neighbors for dinner and an election watch party. And tomorrow, I'm planning to step away from the exhausting digital chatter. I'll take a break from social media and pause those political newsletters that have been clogging my inbox. Instead, I'm looking forward to picking up an old-fashioned printed newspaper, free from algorithmic curation. I'll spend more time in nature, reconnect with my local community, dance, and lose myself in some historical fiction - stories that remind us of our shared humanity.


The insights that follow in this newsletter about long-term investing principles remain as pertinent today as they were in decades past. And remember - markets ultimately reflect human ingenuity, innovation, and resilience. While politicians come and go, the enduring story of markets is one of millions of people working, creating, and building value together.


Dream. Plan. Prosper.

MONEY WISDOM DEEP DIVE:


It's understandable why investors might be tempted to make election-based investment decisions. Let's examine common arguments I’ve heard in my conversations with investors and why they may be flawed:


"The president's policies directly impact the economy and markets." While presidential policies can influence the economy, many other factors play significant roles, including global events, technological advancements, and actions by the Federal Reserve. The market's complexity makes it difficult to isolate the impact of any single factor.


"Historical data shows certain parties are better for the market." Long-term data shows that markets have performed well under both parties. External factors often have more influence than party affiliation. The Exhibit below shows the growth of one dollar invested in the S&P 500 Index over nine decades and 17 presidencies (from Coolidge to Baiden). 


"Making quick changes can help me avoid potential market downturns." Timing the market is notoriously difficult. Current market prices offer an up-to-the-minute snapshot of the aggregate expectations of market participants, including expectations about the outcome and impact of elections. Investors who make reactionary decisions often miss out on subsequent rebounds, potentially harming long-term returns.


"This election is different/unprecedented." Every election feels unique, but markets have weathered various political scenarios over decades. Diversification, including geographic diversification and a long-term strategy remain key regardless of the political climate.


"Big investors seem to be making moves based on the election." What works for large institutions with complex strategies may not be suitable for individual investors. Moreover, we often hear about the few who guess correctly, not the many who guess wrong.


Consider the 2016 election: When Donald Trump won, many analysts predicted a market crash. Instead, the S&P 500 rose 19.4% in 2017. Conversely, after Joe Biden's victory in 2020, some forecasted economic doom. Yet, the S&P 500 gained 26.9% in 2021. These examples underscore how difficult it is to predict market performance based on election outcomes.


Conclusion


In this election season, remember: your investment strategy should transcend political cycles. Stay focused on your long-term financial goals, not short-term political winds. If you're feeling uncertain, reach out to discuss your concerns and ensure your portfolio aligns with your long-term objectives.

ELECTIONS AND THE MARCH OF MARKETS

It’s natural for investors to seek a connection between who wins the White House and which way stocks will go. But a look at history underscores that the outcome of an election is only one of many inputs to the market.


Watch here.


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