What Will Elections, The Economy, Europe & Iran Mean for Your Portfolio?

UnknownOh , where do I begin with this?

Every day I get questions about the Presidential Election, the Economy…and now Iran. Clients always like to know what I think. So that being said, this is only my opinion of what is to come. (imagine the fast talking commercial guy reading disclosure in the background) I’m not basing this on fact or well-researched material. Purely on observation.

The Presidential Election
Election day is just a few weeks away. Both candidates, Obama and Romney, offer stark contrasts in the direction of the country as well as the economy. How will each impact your portfolio? 

The stock market usually factors in events of significance as much as six months in advance. An Obama re-election has been factored in. I would argue that Wall Street already knows what President Obama is about and only certain sectors of the economy will be impacted, such as healthcare. I don’t think we will see a big correction or a market rally. So a mixed bag for your portfolio. A Romney victory would bring a stock market rally. Anticipation of lower taxes for individuals and corporations, as well as less regulations will push the markets higher. A boost for your portfolio.

I could go on and on about which sectors and types of securities would be impacted. Let’s just say that neither candidates election will impact the economy as much as the expiration of the Bush Tax Cuts. Recently the Congressional Budget Office (non-partisan government agency) announced that if the Bush Tax Cuts expire, unemployment would rise to over 9% and we will be in another recession in 2013.

The Economy & Europe
No matter who gets elected there will be changes. It is likely that interests rates will remain historically low and unemployment will continue to be a challenge. Taxes will be the biggest factor that will affect our economy. How will your portfolio be impacted? If you want to reposition your holdings for gains and losses, now would be the time to do it. Cap gains are set to go up January 1, along with tax increases in dividends.

Some European countries are showing evidence of going into recession as I write this. How will that affect your portfolio? The U.S. has exposure to these countries and it could spill over into our economy. Therefore, slowing economy equals lower corporate profits, and that equals lower stock returns. What’s an investor to do? Well first, don’t panic, all of this is simple conjecture on my part. It may not happen. If it does, continue to utilize a diversified portfolio and remain patient.

Let’s address the proverbial elephant in the room. In recent weeks, there have been rumors that Israel will strike nuclear facilities in Iran this October before our elections. If this does happen, it will be the Israelis that initiate the offensive while the United States stays out of it. President Obama has said many times he will not support this action. However, if the fighting becomes really bad, or spills over to civilians, I think the U.S. will intervene.

This will affect portfolios in several ways. Energy and oil prices will increase. Israeli and U.S. markets will sell off because of the uncertainty. All of this will be temporary and unimportant to long-term investors.

So what can you do?

Sit down with your Financial Advisor and review your long-term goals and risk tolerance. Don’t over react to any of this. I hope I’m wrong about a lot of this. So there is no reason to do anything rash, such as sell your whole portfolio. Are you worried about how the elections, economy, Europe and Iran will impact your portfolio? Feel free to write to me at  david@lexwealth.com, or call me at (859) 225-2596 for a second opinion.