Presidential Elections and Retirement Portfolios

Presidential election cycles have a history of unpredictability, and for that reason alone investors should be cautious about tailoring their portfolios based on the politics of the day.

In recent presidential election cycles, there has been a history of unpredictability of who the final candidates turn out to be, says Jim McDonald, executive vice president and chief investment strategist of Northern Trust Asset Management.

During the 2008 election cycle, Hillary Clinton and Rudy Giuliani were viewed as frontrunners, only then to be beaten by Barack Obama and Mitt Romney as presidential candidates. Given such uncertainty, if investors are looking to shift their portfolios ahead of the 2020 presidential election cycle, McDonald says they should wait.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“It’s too early in our mind to shift portfolios [based on speculation about who will become the next president],” he says.

Once the Democratic and Republican fields begin to narrow next year, investors could run a “scenario analysis,” McDonald adds. A scenario analysis allows investors to contemplate refinements to their portfolios as new policy proposals and polling data emerge. He recommends investors wait to make substantial changes to their portfolios until after Super Tuesday, if they feel they should make any changes at all.

“You can keep refining until the election, and then when the election occurs, then you make the required adjustments,” he says. However, McDonald urges investors to be wary about making policy assumptions, and to view polling data cautiously. 

“The unpredictability of elections and polling data makes it dangerous to make big bets,” he warns.

Wayne Wicker, chief investment officer at ICMA-RC, agrees that investors should be very cautious when thinking about elections and possible portfolio adjustments. 

“Earnings growth is going to follow the business cycle, and while there are things that individual politicians might do to either spur growth or hinder it for the business community, that always takes time,” Wicker explains. “It’s a much broader set of factors beyond the presidential election that impacts how earnings growth is affected.”

Wicker uses the 2016 presidential election results as an example, when many polls leaned heavily towards Hillary Clinton.

“You could have made the wrong choice and missed a really strong rally over the next year or so in the financial markets,” he says.

Wicker believes investors should stick to a sober, long-term strategy that realistically assess risk parameters and return aspirations. McDonald echoes a similar sentiment, adding that the most important factors for retirement plan investor success are to avoid trying to time the markets and to ensure that portfolios are well-diversified. Predicting individual asset-class returns year-over-year is hardly possible, but it’s a more attainable job to forecast a total return if investors own a broadly diversified portfolio.

“Diversification really remains the only free lunch in the investment world,” he says.