Marc André Castonguay, CFP, CIM
December, 2024
The recent U.S. presidential election has captured global attention, with many Canadians wondering how the outcome might influence their investment strategies. In such an environment, what’s the best course of action for investors?
The recent U.S. presidential election has captured global attention, with many Canadians wondering how the outcome might influence their investment strategies. The media headlines, debates, and speculations can spark strong emotions, leaving some investors tempted to make swift changes to their portfolios. However, as we’ve learned time and again, emotions and investments are rarely a good mix.
While elections dominate the news cycle, they often have limited long-term impact on investment portfolios. What truly matters are the policies implemented by the new administration, as these shape the economic, business, and financial landscape over time.
Policy Uncertainty Is Nothing New
President-elect Trump has quickly started building his administration, yet the exact shape of his policies, and more importantly their outcome, remains as uncertain as it was before the election. His campaign included promises to address border security, control inflation, cut taxes, reduce government spending, and increase tariffs on imports. However, some of these goals seem to conflict—particularly regarding managing inflation and fiscal policies.
Historically, Trump has favoured tariffs, tax cuts, and a tough stance on trade, and these priorities will likely persist. Still, predicting the full scope and impact of policy changes is challenging. Investors should remember that even policymakers themselves often don’t fully understand how their initiatives will unfold in practice.
Fortunately, financial markets provide real-time feedback for governments, acting as a barometer for the reception and viability of policies. Sharp market reactions—whether in bond yields, stock prices, or currency movements—often prompt policymakers to adjust their approach. For example, in the fall of 2022, the UK government had to walk back from their planned unfunded tax cuts after its proposal sparked turmoil on financial markets and hammered the value of the British pound. However, markets are not perfect. There is still the risk of markets initially favouring policies that might prove ill-suited in the long term.
What Should Investors Do?
Despite the political and policy uncertainty, equity markets have remained robust, with U.S. equities performing particularly well over the past year. While global diversified equity markets are reasonably valued relative to growth expectations, U.S. markets stand out as historically expensive. Additionally, interest rates, while still moderate, are higher than they’ve been in recent years.
In such an environment, what’s the best course of action for investors?
Stay Invested: One of the worst mistakes an investor can make is trying to time the market based on short-term events and headlines. Rarely will you need your entire portfolio for immediate cash needs, and pulling out of long-term investments can jeopardize future financial well-being. Remaining invested through economic cycles is critical to achieving long-term success.
Assess Your Risk Tolerance: If you haven’t done so recently, evaluate the level of risk in your portfolio. Consider your cash flow needs over the next 3–5 years and ensure you have a plan to meet those needs even if the market faces a significant downturn. A useful exercise is to imagine how your portfolio would fare if equity markets declined by 30% and took several years to bounce back. Could you still achieve your financial goals?
Review Your Financial Plan: Markets are currently buoyant, and interest rates are higher than they’ve been for much of the past decade. This creates an opportune moment to revisit your financial plan and portfolio mix. Has your personal or financial situation changed recently? Are your current investments aligned with your long-term goals and risk tolerance? These are essential questions to address with your financial advisor.
Take a Long-Term Perspective
While political events like elections can feel momentous, history shows that their direct impact on long-term investments is often overstated. Economic cycles, corporate earnings, and global trends tend to exert more significant influence over time. That’s why it’s important to resist reacting to daily headlines and focus instead on a disciplined, long-term approach.
By staying invested, understanding your financial needs, and maintaining a diversified asset mix aligned with your goals and risk tolerance, you can navigate market ups and downs with confidence. If it’s been a while since your last portfolio review, consider booking an appointment with your advisor to ensure you’re on track to meet your goals—no matter the headlines.
Author:
Marc André Castonguay, CFP®, CIM® is Senior Manager, Financial Planning with Louisbourg Investments.
Comments or questions may be submitted to him at marcandre.castonguay@louisbourg.net.
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This writing is for general information purposes only and is not intended to provide legal, accounting, tax or personalized financial advice. If you are not sure how to proceed with a request for further information, seek help from a professional. Any opinions expressed are my own and may not necessarily reflect those of Louisbourg Investments.
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