Could This Election Trash My Portfolio?

QUESTION: With only three months or so left in this messy presidential election season, what should I be doing to maximize my returns?

ANSWER: Politics has very little to do with investing. Why? Because the U.S. economy moves forward based off the daily activities of its roughly 342 million citizens, not because of the few hundred people chosen to govern them.

To be clear, having good government policy is important, and over time adds to our economic growth and stability. However, these effects tend to be incremental and take time for a significant impact. More importantly, they are overshadowed by the constant innovation and productivity of the economy. Consequently, the immediate impact of new policy on investments tends to be small.

Every now and then, there is sea-change legislation that has an immediate impact on the markets, but these tend to be once in a generation events. Still, here are three financial considerations that could be impacted by the federal election on Nov. 5:

Corporate tax rates: An increase in corporate taxes is an immediate hit to bottom-line earnings and thus the cash companies have available to distribute to shareholders. This would have an immediate impact on stock prices. However, as it only impacts profits, and not sales, it will not impact earnings growth. That means markets would likely reset and then resume normal growth.

Personal tax rates: Unless reauthorized, the 2017 income tax cuts will sunset after 2025. While it would have no immediate impact on stock valuations, reduced fiscal stimulus (taxes going up), usually removes money from the market, reducing valuations. Yet more fiscal responsibility might also ease inflation and lead to lower interest rates.

Wealth tax: Requiring the wealthiest investors to liquidate 2-3% of their wealth every year could create market disruption as they seek to raise the liquidity to pay the tax. It’s difficult to estimate if this would create a valuation distortion or simply just disrupt normal trading, but some notable stocks with many shares owned by billionaire founders would need to be watched. Think Amazon, Tesla, Berkshire Hathaway and Microsoft.

Ultimately, there is no surefire investment action you should take before the Nov. 5 election. So, vote for your favorite candidate, or maybe just pick the one you dislike the least, and AMG will be watching for any election outcomes that could affect your bottom line.