Biden Victory: A Divided Government May Help Your Portfolio
As originally appeared in The Jerusalem Post, November 14th, 2020
“Politics is too partisan, and sometimes patriotism is cast aside. Patriotism is honor and love of your country and your brothers and sisters. With politics I get the impression that it’s all about what’s good for the party and not necessarily what’s good for the country.” – Ricardo Montalban
I have been spending a huge amount of time on the phone since last week’s US presidential election. While there is still no official winner, and things could still change, it appears as if Joe Biden will be president. Clients want to know what they should do with their money. There are certainly those who are panicked and want to bring their money back to Israel. They are saying that he will be bad for Israel and that he will pander to the left-wing of the Democratic Party and that can’t be good.
I tend to be a bit less pessimistic. After all the US is a big country, with around 350 million people who will go to work and continue to brush their teeth, wash their hair, and eat. It is still the global leader with regard to ingenuity and creativity. The sun will rise even with a less business-friendly president. Now, this is based on one caveat, and that’s that the Republicans continue to control the US Senate. If they do, then the potential move towards socialism will stop, there will be no massive tax hikes, and not much will get done. The readers of my blog know that I am a huge fan of “not much getting done.” A scenario where politicians can’t pass legislation that negatively impacts our lives- as usually happens- is a blessing. Please, just leave us alone!
In fact, for stock market investors a divided government with a split congress historically has been very rewarding for investors. Keep in mind that past performance isn’t indicative of future results. Analyzing the election results LPL Financial came out with a note saying, “The S&P 500 historically has done quite well under a divided Congress, up more than 17% on average. Additionally, in years with a divided Congress, stocks have been higher the past 10 times, with 2020 potentially being the 11th in a row.” Add into the mix zero percent interest rates, probable fiscal stimulus, and a corona vaccine which will allow the economy to really open up, and things are potentially looking positive.
Of course, if the Democrats sweep the 2 Senatorial runoffs in Georgia in early January, then all bets are off, as the chances of much higher income and capital gains taxes and more government regulation increase significantly and that’s not a great recipe short-term for the market.
Opportunity knocks
Just like had Trump won, certain sectors would have benefitted more than others. The Biden win seemingly would be a boost for healthcare, technology, China, and “green’ investments. I am obviously not recommending that you go out and buy those investments. Research must always be done before purchasing an investment to see if it matches both your risk profile as well as helps you to achieve your goals. My point is that there will be opportunities to profit in the market. But to panic and sell is a fool’s game. The stock market has weathered wars, terrorist attacks, higher interest rates, and higher taxes and while there is always the possibility of short-term market drops, over the long-term stocks are a great way to grow wealth.
I know that I sound like a broken record but the way to grow wealth is to buy good investments and hold them. If the market were to drop, buying more has been proven over and over to be very profitable. If short-term market movements make you nervous, you either have no business investing in the stock market, to begin with or at the very least it’s a sign that you must dial back your exposure to stocks. As Warren Buffet said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
Individuals need to stop relying on the government no matter who the president is, to provide for a secure financial future. Do it yourself. Start saving, living within your means, and investing and if you do there is a great chance that you will succeed financially.
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The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
