What Does the Outcome of the US Election Mean for Australian Investors?
Let’s talk about it here in brief.
Indeed, election-year politics create a lot of short-term noise for investors. Not to worry, though. Research shows they have minimal impact on either shares or bond yields when the sun rises 20 days later. [1]
Figure 1 “Not Very” is the answer to how interested the market is in politicians.
We recommend investors look through near term volatility and noise (especially from Donald Trump!) and only consider tweaking portfolios once Biden is sworn in as the new President.
Policies not Parties
We’re happy to tell you the performance of shares depends more on policies and less on parties. And the idea that Republicans are more market-friendly than their Democrat rivals is not accurate. Historical returns for the Republicans and Democrats are not too dissimilar over the past 22 election cycles.
Figure 3: Democrats can be pro-economy too. Ask Harry Truman & Bill Clinton.
Australian retirees who are playing the long game should not fear the election outcome. US monetary policy (interest rates governed by the Federal Reserve) is independent of politics and will remain highly supportive for growth assets like shares and property.
Also, fiscal policy (taxes and spending determined by the US Government) will be supportive regardless of who controls the White House.
Finally, any election protests, are likely to be disruptive but not destructive, for the economic outlook. What’s a US election without a demonstration after all?
A lot of our clients hold US investments for growth exposure while they have US fixed income for choice and liquidity. We think none of these attributes will change (at least in a material sense) because of the US election. If you have exposure to shares in the US, then you should keep it that way.
There can be sizeable power shifts after an election. Still, the level of uncertainty surrounding the 2020 outcome implies that investors are remaining flexible and are prepared to make changes when clarity emerges. But not beforehand!
If you’d like to discuss potential impacts of the US election on your investment portfolio then please feel free to speak with one of our qualified financial planning experts on (03) 5224 2700.
[1] Macquarie Wealth Management, Investment Strategy Update #29, “What the US Election Means for Australian Investors.”
Photo by Library of Congress on Unsplash