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Financial Goals

After the 2016 Election: Focus on the Future and Filter Out the Noise

Making investment changes when emotions are running high is always dangerous—including when it comes to this election. The wise thing to do is to remain calm and stay the course.

Articles by Dan Egan

By Dan Egan
Managing Director of Behavioral Finance & Investing, Betterment  |  Published: November 9, 2016

Donald Trump’s victory brought an end to a much-watched presidential campaign.

But you can stay calm, because global and domestic futures markets have already adjusted to the new future and likely won’t impact your investments over the long term.

Regardless of your party affiliation, it can be damaging to let your political leanings drive your financial decisions, and reacting to news after the fact is more likely to hurt your portfolio than help.

If there’s one lesson we can learn from the 2016 presidential election, it’s this: It’s really, really hard to predict the future.

Ahead of the election it seemed like a surprise Trump victory would lead to a market crash. Up until the final moments, pollsters, pundits, and betting markets all pointed to a Clinton victory. Yet they turned out to be wrong, and markets actually opened higher after election day.

The questions now are: How does this affect your investments, and what should you do—or more importantly, not do?

We know that seeing any market dip is scary, no matter how long it lasts. But our advice today is no different from what it’s always been: The best thing to do when the market is down is to stay calm, and stay the course.

Markets Are Pricing in the Election and Stabilizing

As results came in on election night, other financial markets around the world were still open and trading. Based on movements in U.S. futures, currency markets, and international stock markets, the news was digested overnight, and incorporated into current prices.

What did their actions tell us? Asian markets opened and closed encompassing the election results, and ended down less than 1% for Chinese equities. At their lows overnight, European markets had sold off by around 2.4% but rallied back to being down between .5% to 2%, depending on the country. The dollar weakened overnight, and was back to even by the morning after.

Closer to home, U.S. futures implied that the market would open down 1.5% to 2%, after an initial overreaction of dropping 5% overnight. This meant that markets weren’t betting on a crash scenario, and by the afternoon after, futures had stabilized.

S&P Futures Activity, Before and After Election

S&P Futures

What we know is that while most of us slept, the market already panicked, stabilized, and had settled in.

Make Decisions With a Cool Head and Calm Heart

We know that some investors are pretty emotional right now. Strong democratic supporters will likely be feeling a heady hangover from a cocktail of strong disappointment with the outcome, mixed with fear about how financial markets and their portfolios are going to react.

But investing is a game won by the head, and not by the heart. Before you commit to making changes, ask yourself some key questions:

  • Are you making this decision in a calm and collected state? If not, and your heart is beating faster, it’s a good sign to take a step back.
  • What do you think the market isn’t properly factoring in? If you think you’re better at predicting the future than millions of traders, be wary of overconfidence.
  • Have your plans for the future changed? If they haven’t, why change how you’ll achieve them?
  • If you pull out of the market now, how or when will you get back into the market? Remember that attempting to time the market is ill-advised, and usually leads to underperformance.

Presidential elections are always media circuses, and this one set a new standard for level of media coverage, variety of news sources, and social media involvement. It’s important to remember that fear and bad news sells more newspapers (or clicks) than a moderate, steady viewpoint.

So let’s take a deep breath, and take a step back.

The president is just one component of our government, which was designed to make changes slowly and with careful consideration of the diverse sets of interests in our country.

The government we’ll have starting in January will be unusual in that, even within the Republican party in the White House, there are divisions on key issues of free trade, immigration, and welfare policy. While we’ll definitely see a shift from the current administration, the outcomes are unclear.

Lesson Learned: No One Can Predict the Future

Everyone should be wary of being very confident about what the future holds. The world economy is a large, complicated system with many actors, compensation mechanisms, and a robustness to unforeseen changes. Brexit occurred in June of this year and yet now, just five months later, the U.K. stock index is back to even.

A U.S. president is an important part, but only one small part of that whole system. There are steady secular trends that will all continue to influence the world: demographics, globalization (including outside the United States), and—close to our hearts here at Betterment—automation.

All of these are long-term reasons to be positive, and not make short-term changes to a plan crafted in calmer moments.

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