Buckle up: You’re in for a potentially bumpy ride. There’s no need to reach for your parachute, but you may want to rely on a copilot to keep you steady.
While people across the country have reacted differently to the Nov. 5 election results, as Palisades Hudson’s chief investment officer, I’ve been focused on how those results impact our clients' investment portfolios and long-term financial plans.
While an election often offers some clarity about the few years that will follow, Election Day 2024 eliminated a few possibilities but left many others in play. The usual expectations for how a party will govern are up in the air given how idiosyncratic and dynamic Donald Trump can be. Republicans are classically good for business, but mass deportations and tariffs could be highly disruptive drags on the economy. Just as many people were eager to predict the election’s outcomes, an unending array of opinions on how the markets will behave have arrived in its aftermath. Trump’s frequent changes of heart introduce new risks to the economy at large, but as his first term demonstrated, they can be even more consequential to individual companies and industries. It’s riskier to make concentrated investments in these conditions.
My humble view is diversification remains an appealing financial strategy to combat the uncertainty investors face following the election. This isn’t to say you should throw up your hands and surrender all control to market forces. Instead, heed one of the lessons I was reminded of on election night: We live in a country that prizes individualism, and many voters believe that each person ought to think and act in ways that benefit their own goals and the causes they personally value.
Now that the election is over, investors should focus on their own situations, and how political and economic developments could impact their personal plans. If you’re worried about a particular social cause, you could increase your support of charities that help the cause. If you’re optimistic about the economy, you might consider your career choices in the short term accordingly.
Markets moved quickly following the election, but it’s impossible to determine if they have fully captured the implications of the election, or over- or underreacted. Most market forecasts I have seen acknowledge that there’s a wide range of potential scenarios that could play out, and the market’s reaction to those scenarios is therefore uncertain too. This level of uncertainty is exactly why, at Palisades Hudson, we pursue a diversified approach that doesn’t rely on attempts to predict short-term market moves. A properly diversified portfolio will prevent one company’s feast or famine from materially impacting an investor’s circumstances.
We always encourage our clients to invest money they need in the near term in conservative investments that are not subject to the stock market’s fluctuations. This advice has not changed with election results, this year or in the past. Regardless of election outcomes, the stock market has historically behaved unpredictably over short periods of time. Diversifying has proved a durable way to reduce your risk, and investing for the long-term has generated more predictable ranges of returns.
In 2016, I also wrote an article urging long-term investors to maintain their investment strategy, even if they were disappointed with the election results. (I’ll let you in on a secret. When I drafted that article, I thought I was writing it for soon-to-be disappointed Republicans, but the message held true when Trump won.) When Biden was elected in November 2020, the S&P 500 was 55% higher than when Trump was elected in 2016. On Election Day 2024, the market was 75% higher than when Biden was elected four years earlier. Whether you look at the recent past or long-term trends, the market can perform well under both parties. Republican control might sometimes serve as a tailwind helping the economy, but it’s not strong enough alone to cancel out other macroeconomic developments.
As an investor, you cannot control the direction of markets as a whole. Rather than allowing your financial plan to depend on politics, you should focus on identifying and incorporating your own priorities and the particular circumstances that matter in enabling your financial success. Unlike the fluctuations of the stock market, you can often control situations like how many children you have, where you live, how much you save and how much you spend, and how much tax you pay and when. Making these choices align with your values and goals is essential to developing a sustainable financial plan for your family.
In the face of uncertainty, try focusing on what you can control. If you haven’t recently done so, I recommend documenting the major considerations in your financial plan and setting specific long-term goals. This should help identify what levers in the cockpit of your financial life have the most impact on your trajectory. Consider what actionable steps you can take in the short term to achieve your specific goals in the long term. One of the things that keeps financial planning so interesting is that opposite strategies, like the different political parties, can represent the best course of action depending on individual circumstances. Maximizing 401(k) contributions is a great tip for some people, but it can be a bad decision if you carry high interest rate debt or have other urgent needs for the funds.
I encourage you to start conversations with the people involved in making your financial plan, whether it’s your financial adviser, attorney, family members or other individuals your choices will affect. This dialogue will ensure that everyone involved understands what matters to you. Be sure that you also listen with an open mind to consider if you may have a blind spot.
As always, everyone’s situation is different. But if you want a couple of broadly actionable tips before year-end, here are two that don’t rely on a crystal ball. Consider taking advantage of any annual benefits that expire by year-end: insurance coverage, retirement account deferrals or annual gift limits, to name a few possibilities. And make any large purchases soon if it’s practical to do so, since prices could go up as a result of broad tariffs. For more specific recommendations, keep an eye out for an upcoming Sentinel article by my colleague Paul Jacobs regarding potential tax changes ahead.
The future is always uncertain, but for many, it feels especially uncertain now. Luckily, knowing the future is not a key part of a well-made financial plan. Stay the course, lean on your adviser if you need to, and keep your eye on your eventual destination.
