As is the case with all elections, there are myriad issues that influence the mindset of any particular voter. The ongoing race between Kamala Harris and Donald Trump is no exception.
For this election, there is one specific area that seems to overlap among voters regardless of party affiliation, though: the economy. Voters want to know each candidate's plan regarding inflation, taxes, and a whole host of other economic issues.
I explore some of the more prominent themes influencing the stock market right now, and how investors can navigate them with the election looming less than 50 days away.
Navigating election-driven turbulence
Historically speaking, September tends to be a tough month in the stock market, hallmarked by heavy selling. There are lots of theories revolving around the so-called September Effect, but the big idea here is that there are a variety of factors at play influencing the abnormal stock market activity during this time of year.
While the activity so far this September hasn't deviated too much from historical trends, this year does contain something unique: a presidential election. Famed statistician and political pollster Nate Silver currently shows a tight race between candidates Harris and Trump. I think it's fair to say that the election narrative is playing a role in current stock market dynamics.
No matter what television channel I'm watching or what social media platform I'm perusing, I am constantly bombarded with the same material. I find the ongoing carousel of commercials and advertisements featuring prophetic alarmist narratives over recessions and opposing views of which candidate will be better for the economy to be largely distracting.
I don't know if the U.S. will enter a recession next year. I also don't know how much interest rates will be cut, and what that could mean regarding the Federal Reserve's economic outlook.
Here's what I do know: Overthinking, be it an investment prospect or life in general, isn't useful.
Image Source: Getty Images.
Taking a page out of Buffett's book
Warren Buffett is one of the most accomplished investors of all time. But what most people probably don't understand is that Buffett didn't make his fortune thanks to some otherworldly levels of knowledge. In fact, just like all of us, Buffett made mistakes during his investment journey and learned from them.
A cornerstone of Buffett's investing philosophy is the idea of investing in America. Some may interpret this as following Buffett's lead into large American behemoths such as Coca-Cola, American Express, or Apple.
Indeed, you can make a lot of money investing in blue chip stocks like these. I think I have a simpler way of investing in America, though.
No matter which candidate wins, these three funds are no-brainers
Instead of focusing on the specificities of each candidate's policies, I'd encourage investors to zoom out and think about the bigger picture.
The long-run compounded annual return inclusive of inflation for the S&P 500 is about 7%. Imagine earning 7% on your portfolio every year for decades. The point? No matter which political party is in the White House, investors have been able to make money.
One of the best ways to invest in America is through exchange-traded funds (ETFs). The Vanguard S&P 500 ETF (VOO 0.14%), Invesco S&P 500 Equal Weight ETF (RSP 0.12%), and SPDR S&P 500 ETF Trust (SPY 0.15%) are all great opportunities for investors looking for diversification in their portfolio while also gaining exposure to the largest American companies.
Without getting too much into the minutia, the primary differences among these three ETFs revolve around security weighting and expense ratios.
For example, the Vanguard S&P 500 and SPDR S&P 500 funds are weighted based on a company's market capitalization. This means that larger companies can influence the index more dramatically.
By contrast, securities are weighted equally in the Invesco fund.
VOO Total Return Level data by YCharts
The more important idea here is that even though the underlying mechanics among these ETFs differ slightly, each fund has been a massive winner in the long run -- producing total returns in excess of 400%. On top of that, ETFs are appealing because they are passive investment vehicles -- meaning you do not need to analyze the individual holdings and change positions or allocations yourself.
To me, it's not all that productive to speculate over movements among industries and specific stocks based on the outcome of an election. More often than not, you'll miss the forest for the trees.
Instead, it's important to keep in mind that the stock market is a resilient machine, and no matter who wins in November, investing in America over a long-term time horizon has been a multibagger for patient investors.
