Previously I discussed a survey that found most investment advisors are expecting the presidential election to result in rough seas for both their business and their clients' long-term retirement portfolios. As it turns out, I am in the minority of advisors that disagree with that belief. (For more, see: Don't Worry About Your Portfolio This Election.)
This is why. Even though the U.S. President is often called the most powerful person in the world, our presidents don’t run the economy any more than they run Congress or the Supreme Court. While they may have some influence over all three, that influence goes only so far.
Certainly the president, as head of the executive branch, has authority over enforcing or not enforcing the laws passed by Congress. We’ve witnessed this most notably with President George W. Bush, who didn’t enforce some environmental laws, and President Obama, who has vigorously enforced them. This gives the president a lot of influence on enforcing regulations which impact businesses and consumers. And enforcing or not enforcing regulations dealing with commerce and Wall Street can have some influence on the economy. (For related reading, see: Trump Takes a Stand on 401(k) Investments.)
A President's Impact on Our Economy
Still, executive branch powers include foreign affairs, ordering military actions, and making appointments to the courts. Congress enacts all laws and controls the spending. The Supreme Court decides if both the executive branch and the Congress comply with the Constitution. Presidents can certainly influence Congress, but they remain one cog of many in the wheel of government.
While the president has an influence on the economy, the role isn’t the major influence that the media or either political party make it out to be. People think a president has great power to fix an economy. Even presidential candidates sometimes believe their own rhetoric about what they can accomplish until they take up residence in the Oval Office and discover there are a plethora of constraints that mute their power. This is how the founding fathers designed our government, which is actually a good thing, especially in this election cycle.
That is why, viewed in the context of your long-term retirement portfolio, you need not worry about who becomes president. Could there be some short-term swings in the stock market? Certainly. Will who is elected president in November make a difference in the long run? No. (For related reading, see: Will the Market Determine the Next U.S. President?)
What to Expect With Checks and Balances
Of slightly more concern, and with a potentially greater economic impact, is if one party gains control of both the executive branch and Congress. The last time we saw that was in 2008-2010 when the Democrats controlled both houses of Congress and the Presidency. One of the biggest outcomes of that two-year run was the passing of the Affordable Health Care Act, which certainly had a large economic impact. Whether that impact was positive or negative depended on your economic status. For many of the uninsured working poor, it was a godsend. For anyone not qualifying for a subsidy on the exchanges, it resulted in an increase in health premiums.
This year I won’t be doing anything differently with my investments even if we have a Democratic or Republican sweep of the Congress and Presidency. If you have a globally diversified portfolio of many different asset classes, you have no need to make any adjustments. And while I am neutral as to the impact of the presidential election on my investment portfolio, that certainly does not mean I don't care about the election or the person who represents our country in its highest office. I am going to vote, because elections do matter. The choices we make as voters, not only for president but for Congress and state and local officials, do have an impact on the direction of our country. (For related reading, see: Advisors: What the Election Means to Your Clients.)