Here's How the Election Outcome Will Affect Investment Portfolios

Editors' pick: Originally published Nov. 3.

As we count down the moments left in this interminable, unpredictable election cycle, one thing is certain: Many investors are wondering how the outcome will affect their portfolios.

With the economy, trade deals and a variety asset-specific policies on the line, there are many aspects to consider.

Let's look first at the economy.

Whether investors are all-in on the S&P 500 or have a diverse mix of bonds and alternatives, the economy, more than anything, affects portfolios.

It isn't surprising, then, that in our recent survey of financial advisers, nearly half said that the economy should be the next president's top priority in the first 100 days.

Instead of focusing on any single economic factor, look at volatility. Markets detest uncertainty, and with this cycle's abundance of non-policy conversations about candidates, there is little clarity on what either candidate will actually do.

Already we are seeing markets tumble on election uncertainty, and until we have a clearer perspective, there will be volatility.

In terms of trade deals, both candidates take issue with the Trans-Pacific Partnership as well as the existing North American Free Trade Agreement. If these trade deals dissolve, domestic production and jobs would likely increase.

With more money held domestically, U.S.-based assets could strengthen in the short term.

However, there is disagreement about the effectiveness of this kind of trade policy. The argument centers on what is best for the greater economy: a job within America now or a cheaper product available to Americans in the long run.

Among economists, the answer is overwhelmingly the latter. Especially when it comes to trade deals, anything that incentivizes free trade is hailed as good for the economy, despite extremely concentrated, short-term negative impacts.

How much a change in U.S. trade policy will affect portfolios similarly depends on one's perspective.

Short-term investors can capitalize on the change and/or uncertainty. However, for long-term investors, a change in international trade policy could cause downward pressure.

Meanwhile, though broad economic policy will have the most impact on portfolios, the sharpest changes we will see are within more granular areas.

Looking at capital gains for instance, Republican presidential candidate Donald Trump said that he would retain the capital gains tax but peel back the alternative minimum tax and change carried interest to ordinary tax liability.

Democratic presidential candidate Hillary Clinton similarly plans to retain much of the existing system but envisions incentives for holding assets longer, calling this "quarterly capitalism."

Depending on the duration and size of one's portfolio, tax alterations could change the take-home value.

When it comes to health care, whether it is the expansion of the Affordable Care Act or getting rid of it, there is much on the line when it comes to health care. Pharmaceutical companies are feeling the pressure from both candidates, so health care investors should keep a keen eye on your investments.

In terms of real estate, more than Trump's real estate background, investors should check out his estate tax plans. He promises a rigorous rollback in the estate tax, while Clinton would like to increase the rate, especially on pricier properties.

The chasm in the proposed tax rates means that real estate is indirectly on the ballot on Tuesday.

In conclusion, in order to keep things simple, we focused on the presidency. However, our country's checks and balances ensure that it isn't the only race that matters.

Congressional control, particularly of the Senate, is very much up in the air and will affect all of the areas discussed above.

More broadly, while the election may be top of mind, the best investment strategies are focused on history and performance, not election cycles and politicized thinking.

Investors should remind themselves why they originally made their allocation decisions. Take solace in the fact that regardless of who wins, the affirmation of our country's future will lower volatility, and lower volatility, for most investors, will help investment portfolios.

This article is commentary by an independent contributor.
Dayne Roseman is a managing director at Woodbridge Wealth in Sherman Oaks, Calif.

 

 

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