Get Ready to Ignore November

As I’m writing this, the Mexican peso has rolled over and died.

And what caused the currency to stumble like a drunken borracho who had one too many shots of tequila?

Bloomberg released a poll that showed Donald Trump leading Hillary Clinton in Ohio, a critical battleground state, and The Donald’s relationship with Mexico is… shall we say… complicado.

Over the past several months, the peso’s fortunes have waxed and waned with Trump’s polling numbers. The thinking is that a Trump America would be less open to free trade… and America is Mexico’s most important trading partner. So a Trump win would be no bueno for Mexico.

Or at least that’s the narrative…

I’m not the biggest fan of either candidate this election, though I don’t think either will be as apocalyptic as their opponents might think.

Hillary Clinton represents the status quo, which I don’t consider good. But if the next four years look like the last eight, it won’t be the end of the world. We’ll grumble about it. We might not like it. But life will go on.

The thing is, I could say the exact same about a Trump administration. For all of his talk, I really don’t see The Donald being an extremist or a revolutionary in practice. Sure, he talks big, particularly about protectionism, and might very well slap a token tariff or two on foreign imports. (News flash: both Barack Obama and George W. Bush slapped on a few tariffs of their own while in the White House. Sadly, it scores political points.)

Trump might even build his wall along the Mexican border… and might, through some accounting gimmickry, claim that Mexico paid for it. But I don’t see a Trump White House taking a page out of Herbert Hoover’s playbook and taking a wrecking ball to global free trade. I don’t think he has the stones to do it and face the fallout that would follow.

Sure, the proposed Trans Pacific Partnership (between the U.S. and much of Asia and Latin America) and the Transatlantic Trade and Investment Partnership (between the U.S. and Europe) will probably be dead on arrival. But frankly, given today’s political climate, I wouldn’t see Hillary Clinton getting the deals done, either. Neither George W. Bush nor Barack Obama had much success on that front.

And I don’t see Trump dismantling existing trade deals like NAFTA. It wouldn’t be successful in bringing back American manufacturing jobs (more of those are lost to automation than to foreign labor), and Trump is smart enough to know that. He’ll make noise about renegotiating the terms. But make no mistake, it will be noise.

In short, in a Trump administration, I would see mostly a continuation of the status quo as well.

So, I’d recommend you tune out the political news this fall. Whichever way the election goes, I don’t see it having much of a long-term impact, good or bad, on your investment portfolios.

But this isn’t to say you should just buy and hold and hope for the best. If the candidate of your choice wins (or loses), it won’t change the fact that stocks are extremely expensive at current prices.

Based on the Cyclically-Adjusted Price-to-Earnings (P/E) Ratio, the S&P 500 is nearly 60% more expensive than its long-term average and is priced to deliver returns of approximately zero over the next decade.

If you’re going to eke out a respectable return in the years ahead, you’ll need to do things a little differently. As I wrote a few weeks ago in Economy & Markets, taking a more active approach to investing will at least give you a fighting chance.

You can also manufacture returns of sorts by effective tax management. Dumping money into your company 401(k) gives you an immediate tax break. If you’re in the 28% bracket, you effectively “earn” $28 for every $100 you put into your 401(k) plan, and that doesn’t include employer matching.

You should also focus on generating current income. Whether the market goes up, down or sideways, funds paid out as a dividend represent a tangible, realized return that you can actually spend, unlike capital gains that can evaporate in a single trading day.