Change in Oval Office Doesn't Have to Mean Change in Your Portfolio

The uncertainty over who will occupy 1600 Pennsylvania Avenue is leaving a lot of investors unsure of what to do. So, many are doing nothing with their portfolio for now. That's a good instinct.

Whether George W. Bush or Al Gore wins Florida and, in turn, the White House, you shouldn't do a makeover of your portfolio based on what it appears the new president will do to your favorite sector once in office. The odds of any of the highfalutin campaign promises taking effect are diminished thanks to a divided Congress. So while the current uncertainty about who won may be unsettling the markets, the long-term investor should not care who takes office -- at least when it comes to his portfolio.

That said, the short-term jitters -- now and after a new U.S. chief executive is anointed -- may provide some buying opportunities for the smart investor, thanks to the people who make emotional decisions.

Expect Short-Term Reaction

"Every client who tried to react based on a new president's policies has made the wrong decision," says Rick Adkins, a certified financial planner and CEO of Arkansas Financial Group.

Back in 1992, he had a client who took his $4 million portfolio to cash when it became apparent that Clinton might win. And his client insisted on remaining in cash until about a year ago.

It may've be a decent move for a bit. The Dow Jones Industrial Average only advanced 543 points from 1993 to 1994, according to Charles Kadlec, chief investment strategist at Seligman Advisors and author of Dow 100,000: Fact or Fiction. But over the next five years, the Dow saw a 7,000-point increase, says Kadlec.

In the short run, there will be an immediate market reaction to whoever moves into 1600 Pennsylvania Ave. We've seen some of it already. For instance, since the market assumed George W. and his defense-spending strategy was going to win, Boeing(BA) has been up over the past few days. "Is that a reason to own a stock? Of course not," says Tracy Eichler, investment strategist at PaineWebber in New York.

We saw this same impulse reaction back in 1992. The drug stocks immediately fell off because everyone assumed that Bill and Hill would foul up the health care system with their grandiose plans. Thanks to people acting on emotion rather than reality, that ended up being a big buying opportunity for smarter investors, says David Diesslin, a financial adviser at Diesslin & Associates in Fort Worth, Texas.

Should You Care?

The long-term investor should not make portfolio adjustments based on the new president, says Kadlec.

Don't buy Merck(MRK) because Bush says he'll be kinder and gentler to drug stocks. Buy Merck because you think it's got great products in the pipeline and the fundamentals are solid.

And since there isn't an overwhelming support for either party in Congress, expect gridlock in Washington anyway. "The next president is going to have a tough time implementing his agenda since there's no mandate," says Diesslin. So expect to see the policies discussed by both candidates getting attention, i.e., reforming Medicare, maybe some privatization of Social Security and a possible tax cut. This new president knows that if he implements something too radical, provided he can ram it through Capitol Hill, re-election in 2004 may be out of the question.

So while your investment objectives and risk tolerance should not change because of the man sitting in the Oval Office, your expected returns might be off in the short term because of speculation and emotion. Just don't overreact. "Listen, not to what's been said on the campaign trail, but to what the parties are likely to accomplish once in office," says Neil Wolfson, a national partner in charge of the investment consulting group at KPMG in New York. Then take your time and decide if you need to make portfolio adjustments. "The government has never been accused of moving quickly. You will have plenty of time to think through your decisions," reminds Wolfson.

The same rationale must be applied to the possible estate-tax repeal. Before you decide that you're not going to do any estate planning, make sure a repeal actually is going to happen, says Jim Seidel, editor at RIA, an information provider to tax professionals. And then know that it could be years before those changes kick in. Taxes aside, remember that there still are plenty of reasons to create a will and set up trusts, especially if you want to keep money out of your kids' hands. So don't let presidential promises interfere with your heirs' inheritance.

How About a Buying Opportunity?

Panicky investors may present you with a buying opportunity in the short term.

Some sectors may appear to be a bit precarious thanks to campaign pledges, says Russell Owen, president of Strategic Research and Management in Portland, Ore.

For instance, if Gore gets in, on a short-term basis, drug stocks may be negative -- as they were yesterday when the markets traded as if Bush had won. If you've been dying to add to your positions, this may be your chance. Defense stocks may rise if Bush wins so it may be a good time to take some profits if you were thinking of unloading anyway.

But long-term investors know by now that even those decisions should be based on a company's fundamentals. Understanding a company's financial health and ability for long-term growth should be the backbone of your investment decision-making process.

It should have nothing to do with whoever eventually gets to move into the White House.

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