Life After the Election: What Happens Now?

After a very tumultuous time in our country, the elections are over. So, what happens now?


Well, the election may not be as memorable as many have written—we tend to forget more easily than we remember.  It wasn’t that long ago when Ronald Reagan became a two-term president back in 1981.  But it was also an ugly and very contested election.  President Reagan won the Electoral College vote but the popular vote was still close, with President Reagan at around 51%.  

But this article isn’t about the election and politics as much as it’s about how the election may affect us as investors in the stock market, as well as what to expect with our stock markets.  I, for one, have learned to expect the unexpected.  

Our stock markets never cease to amaze me…at least in the short term.  But when you stand back, you can see the forest for the trees and it is easier to navigate.

While I probably sound like a broken record, it is true that to make and sustain real wealth over time, you don’t need to perfectly time the stock markets.  You also don’t need to come up with an asset allocation and forget about it.  Rather, create a long-term strategy—one that will allow you to capture and keep positive returns over an extended period of time. 

Here is what we know—“the facts” so to speak:  

•  Markets rise and fall over time but in an upward trend.  
• The average bull to bear market cycle is usually 4–6 years.  
• Bull markets are usually longer in duration than bear markets.  However, ugly bear markets, like in 2008, can erode a significant amount of your stock market investments.  
• If the value of your stock market account drops 35% you need 54% just to break even.  Even     worse, a 50% decline requires 100% increase to break even. 
• We are entering year 8 of a bull market.  
•  The 1929 Crash occurred after an 8-year bull market.

Okay…what else do we know?

In 1981, when Ronald Reagan began his presidency, the S&P 500 dropped 10%.  However, after his 8-year term, the S&P 500 had average growth of 12% per year.

In 2009, when Barack Obama began his presidency, the S&P 500 rose over 19%.  We aren’t quiet finished with his 8-year term, but through December 1, 2016 the S&P 500 had average growth of over 18% per year.

So, what does this mean?  In my opinion, it means nothing as far as the stock markets are concerned.  They will continue to rise and fall over time in an upward trend.  But we are entering year 8 of a bull market cycle, which simply means that the risks are much higher today than if you invested 8 years ago.  As I am a proponent of trying to avoid corrections of 20% or greater, I believe we should be cautious until our market risk is much lower.  You can invest in today’s stock market, but I personally would reduce my equity exposure and even bond market exposure.  

Not to sound like a politician and contradict myself—but, if you can remain invested during market corrections and create the correct asset allocation portfolio for your situation, this type of portfolio will most likely yield higher returns over long periods of time. 

So, what kind of investor are you?

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