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By Susan Dziubinski | 09-19-2012 03:00 PM

Should You Wait Until After the Election to Reallocate?

Morningstar's John Rekenthaler, Russ Kinnel, and Christine Benz say investors should look past any uncertainties ahead of the presidential election and focus on the underlying fundamentals of their holdings.

This video is an excerpt from the recent Morningstar FundInvestor 20th Anniversary Celebration Roundtable webcast. You can also view the webcast in its entirety.

Susan Dziubinski: Should investors wait until after the election to reallocate their mutual fund portfolios?

John Rekenthaler: No.

Russ Kinnel: What he said.

Dziubinski: Can you expand on that?

Rekenthaler: I mean ever since--in 25 years people always find reasons as to why now is uncertain. There is always an election coming, it was Y2K in 2000, we're in a war, and so forth and so forth. It never pans out at all. "Wait until Y2K gets settled and then buy." Well, actually, stocks went up like crazy until Y2K. Then Y2K went really well and then stocks went down...

Dziubinski: And then the market didn't [do well].

Rekenthaler: And the market didn't. It never makes any sense [to reallocate based on these factors]. Don't.

Christine Benz: One comment though: We do have a lot of tax law changes happening in 2013. Capital gains rates are going up. So, I would say if you have something that is too large a position in your portfolio that you wanted to lighten up on anyway, why not think about it?

Rekenthaler: That's fine, but that's not really the election...

Benz: No, it's more year-end.

Rekenthaler: That's more a tax law year change, OK. I'm with you on that.

Benz: Yeah.

Kinnel: And the other thing I think people fail to appreciate is just that these things are priced into the market every day. So, you go and come up with an estimate of who is going to win today, that probability is priced in. And the markets are very efficient that way, and in fact you think about health-care reform and some of the other things that have been out there, where even could you say this industry is going to be affected. And even then it's hard to make money on that. So I think really you don't want to get stuck. It's much better to keep moving and keep applying your plan, keep going. Generally I think, elections in particular, but a lot of these things have a hard-to-predict effect, and it's not really what should drive your decisions. As Christine says, you know your plans; you know your goals.

Rekenthaler: I'll go further and then say, it would cost you a lot of money in the last 20 years listening to the business press because the business press tends to be pro-Republican. In 1992, when Bill Clinton got elected, [the press] said these bad things are going to happen to the market, and the stock market went up a lot. Then under the George W. Bush years, "Great things are going to happen." In this case it was certainly not Bush's fault; he moved right in as the tech stocks were going down. And then Obama came in and "Bad things are going to happen to the market," and it's been back up.

I'm just saying I don't think who is the president has anything to do with market behavior, and I think we've got 20 years of evidence showing that. And you're going to get yourself hurt by following talk-show hosts and business press and such who are saying this because it doesn't play out. And you'd look at the predictions, and they don't play out. And I've seen people hurt themselves this way. "So-and-so is in office so I've got to get out of these assets. The world's going to end." No, it's not going to fall on you. It's a big world out there, and none of us affects things that much.

Kinnel: I think 2008 has everyone looking for the next Lehman Brothers because with hindsight you wish you'd sold when Lehman Brothers went under. But in fact, usually it's not the first domino of many, and it's not signaling a collapse. We have a lot of crises that don't go the way Lehman does, and so I think it's better to focus on the fundamentals and your own goals.

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