What to Expect During An Election Year

Ty A. Bernicke CFP® | Posted: March 9, 2020

When it comes to food, there are two types of people in this world. The first type of person finds a type of food or dish that they like, and they stick with it. The second type of person is more adventurous and likes to explore different foods by frequently choosing to order something new on the menu almost every time they go out to eat.

Personally, I like to stick with what works. My reasoning for this can be attributed to my belief that the potential glory of finding a new food that I will love is far less likely than experiencing something new that I don’t like. With that being said, both types of food people are ok. They’re just different.

There are also two types of investors. The first type of investor is always seeking out a new strategy that will provide them with greater returns for less risk. These investors will often seek out articles that tend to substantiate their belief system, while shunning articles that have a conflicting opinion. The second type of investor focuses on sticking with tried and true strategies that have a long history of providing value. These investors tend to be more patient and are generally reluctant to buy into the latest investing fad. In a similar sense, I feel it is better to stay with tried and true strategies that focus on a few core concepts.

With 2020 being an election year, I feel that staying with tried and true strategies, even if they seem difficult or wrong at times, is important. The reason this may seem difficult can be attributed to the increased level of volatility that frequently accompanies election years. Perhaps this graph, provided by the Capital Group, will illustrate this point.

This graph contrasts the average rate of return for stocks during non-election years and election years.  The following are a few key takeaways:

1. During election years, stocks tend to have below average returns that also tend to be more volatile through the first five months of the year.

2. The subsequent twelve months following May of an election year tend to include above average performance for stocks.

There are many variables that can help explain increased returns volatility during election years. Uncertainty surrounding the primaries early in the year and the presidential election in November may be partially to blame for heightened volatility in election years. Impeachment trials, the coronavirus, and tariff negotiations may be reasons for heightened volatility in 2020 as well.

However, despite many reasons for concern, there are also plenty of factors to be optimistic about regarding broad fiscal conditions. The unemployment rate has been hovering at historically low levels, the economy has been growing at a rate that many thought was impossible a few years ago, and there are signs of consumer strength throughout the broader economy.

It is easy to understand how investors can get confused when weighing the positive signs against the negative signs. At Bernicke Wealth Management, we specifically avoid making investment decisions driven on emotional factors, instead using what we believe to be tried and true, historically proven core concepts as our guide. As political and social tensions increase, the core concepts that we follow become increasingly important, and we believe these principles provide a compass to point us in the proper direction, regardless of how disruptive the times are. In general, sticking to our belief system encourages us to recommend balanced portfolios that strategically underweight or overweight various categories of investments.

As always, we truly appreciate your business and hope that you are able to find some peace in these disruptive times. We also hope you continue to favor a balanced approach to investing, even if your emotions are telling you otherwise. Finally, I hope you either continue to enjoy your favorite foods, or I hope you find some new favorites, depending on what type of food person you are. Enjoy the start to your spring!

About the author

Ty A. Bernicke CFP®

Ty Bernicke is the President of Bernicke Wealth Management and serves as a Senior Wealth Manager. Ty currently works with a limited number of clients that require wealth and/or investment management services. His research on investment management, retirement planning, and tax minimization strategies have been published or recognized by The Wall Street Journal, Forbes, The New York Times, Futures Magazine, and many other well-known national and international publications. Ty Bernicke and Bernicke Wealth Management give back to the community and environment through numerous charitable endeavors. Ty spends his free time with his wife, two daughters, and one son. He also likes to fish, golf, and exercise.

Certifications, Licenses, and Registrations

  • Registered Principal with LPL Financial, Member FINRA/SIPC
  • Accident, Life, Health, Property, Casualty, and Variable Life/Variable Annuity Insurance Licenses

Education and Training

  • Series 7, 66, 63, 24
  • Bachelors Degree - Finance; University of Wisconsin-Eau Claire
  • College for Financial Planning graduate

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