How to Make Sure Your Portfolio Is Ready for the Election
The answer is not index funds
I was recently asked, “What can I do to make sure my portfolio works regardless of who wins the election?”
I know some people would answer this with an in-depth strategy of picking these stocks if they think Biden will win, and they would avoid these others like the plague. My answer is straightforward.
I would not dramatically change my portfolio, leading up to an election.
I am a long-term investor. That does not mean I will be investing for a long-time. This is also describing how long I plan to hold onto a stock once I buy it. If you are moving in and out of companies on a monthly basis, you are a speculator, not an investor.
My articles are always geared toward investors. If you want to find information around speculation, you probably want to check out Davy Day Trader, not Michael Huskey.
Going back to the question at the top, ”What can I do to make sure my portfolio works regardless of who wins the election?”
Mutual Funds Aren’t Always Diversified
You hear this a lot when you get into investing. Make sure you have a diversified portfolio. Buy a mutual fund, so you have a diversified portfolio.
I agree with the first part, but not the latter. Diversification is essential, but I generally prefer individual stocks over mutual funds. I prefer stocks over mutual funds because I can guarantee diversification with my stock selections, I cannot when I am investing in an index fund.
People will usually say the best way to be diversified is by buying an S&P 500 mutual fund. But right now, the holdings of that index are controlled by market cap; 5 companies control 23% of the fund!
All 5 of these companies happen to be Big Tech. This is good and bad. Good, because those companies have been on a tear since COVID-19. Bad, because the only thing that has bipartisan support in the US is that Big Tech might be too big.
I know some are saying, “you are speculating on the election outcome!” That is not speculation. That is a trend. We have been hearing Big Tech is too big by Republicans and Democrats for about four years now.
How I Pick a Diversified Portfolio
I make sure I have a diversified portfolio by looking at my credit card bills and looking at my Screen Time on my iPhone. I want to see where I am spending my time and money and then try to be somewhat reflected in my stock holdings.
This strategy comes from Peter Lynch, who made the saying invest in what you know very popular.
I use this as a check because regardless of who wins the election, I will be spending money. If you think whoever is elected into the White House will dramatically change your livelihood and how you will make and spend money, I suggest you stop reading this article and find a new job ASAP.
That extreme example aside, stocks at the end of the day move up for one reason, they are making money. Do I think you should just buy stocks of companies you spend money at? No, some people like buying stuff from poorly run businesses.
But, I think a great check of diversification is could I live off my investment portfolio? If the answer is yes, you are probably in decent shape, no matter who wins the November election. If all you have is tech stocks, you may want to consider moving some of that money around.
In Summary…
Many people make money selling people strategies on how to invest around election time. These same people are always selling get-rich-quick schemes, not just during election time. Your time and money are better spent on investing in great companies that can withstand any political candidate.
The way you make money over the long-term is by maintaining a diversified portfolio. Conventional wisdom says you can achieve this by just buying into an S&P 500 mutual fund, current data shows that the promise of diversification is just not there right now.
Instead, I have been looking at a self-guided stock portfolio. To make sure this hand-picked portfolio is diversified, I ask myself, “Could I live off the products of companies I own?” That is not a hard and fast rule, but I think it is a good guard rail from preventing people from just owning tech stocks and then feeling the hurt when an administration wakes up and wants to break them up.
This article is for informational purposes only; it should not be considered Financial or Legal Advice. Consult a financial professional before making any significant financial decisions.
