By Christopher P. Van Slyke
Given that we’re electing a new president this year, it’s not uncommon for clients to ask their financial advisors how we think the markets will be affected by the result. I have a ready answer: while everything matters to the markets to some extent, the only thing that changes market prices is something unexpected.
This election cycle has been going on for a long time — way too long in most people’s minds — and what has happened so far this year? To date, the markets are up almost 10 percent. The expectation seems to be that Hillary Clinton will win, and investors obviously are not too concerned about that. If they were freaking out about the potential new resident of the Oval Office, it would have happened already and the markets would be down.
What might happen if Donald Trump won? There’s no way of knowing, but I’m secure in the faith that our markets work. I don’t worry about the effect of short-term news, so the presidential election is very low on my list of priorities. I know investing is about earnings, and those won’t radically change based on who wins next month.
We really must tip our caps to the founding fathers, who had the wisdom to distribute power among the three branches of government: judicial, legislative and executive. You must remember learning about “checks and balances” in high school civics class; that means the president has limited power — by design.
Think about the fact that we’ve had a liberal Democrat in the White House for the past eight years, preceded by a conservative Republican. Despite their radically different visions, we’re still the same country — and corporate earnings have continued to rise. So if I say anything at all to clients about whether the result of the upcoming election will affect their investments (and I only do if asked), it would be this: have faith in our system and don’t get too wrapped up in who lives in the White House.
In addition to asking us if the results of the presidential election will affect the markets — and thus their investments — our clients are also concerned with interest rates. Poor Janet Yellen and company at the Federal Reserve who have a thankless job; never in my career have people not criticized this institution, yet I think it’s doing a good job of maintaining calmness.
How do I answer questions about what I think interest rates are going to do? I simply say that we have no special insight into what the Fed might do, but we trust the markets, which are not forecasting an interest rate increase.
Basically, with respect to both the election and interest rates, our clients want to know what the future will bring so they can invest accordingly, and that’s not the way it works. Investing means tolerating and even embracing uncertainty and letting risk happen — and getting advice from capable people who have your best interest at heart.
Christopher P. Van Slyke is founder and partner at WorthPointe, a San Diego-based financial planning firm with offices in Newport Beach, Los Angeles, Austin and Fort Worth. Van Slyke has served on the board of directors for the western region of the National Association of Personal Financial Advisors. He has been quoted or published in The Wall Street Journal, MSN Money and other financial publications.