In this episode of Your Wealth Matters, Capstone Portfolio Managers Janet Kim Sing and Maria Dawes explore the relationship between politics and portfolio construction.

We reflect on recent election outcomes in Canada and the U.S., highlighting how shifts in political leadership can impact market stability and investor sentiment. While short-term market reactions—like the S&P 500’s sharp drop after a U.S. presidential shift—can spark concern, the conversation underscores the importance of taking a long-term, measured approach. Maria shares insights from client conversations, noting how uncertainty can be unsettling, especially for those closer to retirement.

Other key takeaways include:

• Stay long-term focused – Avoid reacting to headlines; maintain perspective and discipline.

• No drastic changes – Election results aren’t a reliable reason to adjust asset mix.

• Diversification matters – A well-constructed portfolio with non-correlated assets helps weather volatility.

• Watch interest rates – While it’s impossible to predict their direction, active monitoring and thoughtful responses are key.

Ultimately, politics may introduce change, but strategic portfolio design and sound advice help investors remain grounded through it all.

With election headlines often dominating the news, many investors can’t help but wonder—how much do politics really affect their portfolios? While campaign promises and policy shifts can stir market volatility, it’s important to understand the true impact of political change on investments and how to respond. 

In this episode of Your Wealth Matters, Portfolio Managers Janet Kim Sing and Maria Dawes from Capstone Asset Management dive into the connection between politics and portfolio construction. From market reactions and investor sentiment to interest rates and diversification strategies, we offer timely insights on how to navigate uncertainty without derailing long-term financial plans.

JKS: Welcome to Your Wealth Matters! I’m Janet Kim Sing, Portfolio Manager at Capstone Asset Management and today, I’m joined by my fellow my colleague and Portfolio Manager on the Private Wealth Team, Maria Dawes.

Today, we’re discussing a topic that I hope is relevant to our viewers, and that is politics and portfolio construction. What is the correlation between politics and investments, and what should we do when it comes to portfolio construction in the face of potential changes to our economic landscape. Maria, we’ve recently come through an election here in Canada, and we don’t want to talk about candidates or specific policies necessarily, but at a high level, can you tell me the correlation between politics and investments?

MD: Hi Janet, that’s a nice, easy question to start, so I’ll try my best. It would be too broad to comment on all investments and their potential reaction to an election or change in government, but market anxiety that can spiral into chaos is a real thing. We literally just witnessed this in the US, where the S&P500 dropped 10% within two days, and they’re saying that the US index experienced its worst first 100 days of any presidential term in more than 50 years. 

That’s not immaterial. That can cause some damage not only to a portfolio but, just as importantly, to an investor’s confidence.

Politics and Market Reactions: What’s the Real Impact? 

JKS: Yes that was fairly dramatic, now Maria we haven’t seen this type market action in Canada yet and that’s not to say that it can’t happen but I would say the scenarios are quite different in that the US experienced a change in government whereas at home here we had another Liberal Party win but it is a minority government which means getting legislation passed is not as simple. To me, this means we’re not going to see drastic changes in policies from day 1…it’s going to take some time, and this is good from the standpoint of market stability. 

So I think the bottom line, though, that we’re saying is that there is a correlation between politics and moves in the market, especially in the short term. Maria, in practice, you know, in conversation with your clients, is this meaningful? What’s the sentiment you’ve experienced?

MD: For me, it’s been a mixed bag. I’d say some are bothered by the volatility; I mean this creates uncertainty, and as we age, we have less of an appetite or runway to tolerate uncertainty, instability, and all things volatility-related can create a lot of fear and concern. 

JKS: I agree. I think even for clients who have a comfortably sized nest egg, they have a fairly good financial situation, this uncertainty can be worrisome, and I’ve certainly witnessed that in my conversations as well. Now, I guess the question then becomes, how does that affect portfolio construction?

Building Resilient Portfolios in Uncertain Times

MD: So, one thing we haven’t yet discussed is the time horizon. We spoke about a massive drop in the market in the US back in early April, and year to date, at the time of this recording, the return for the S&P 500 is still negative but has come back a bit since the lows. Those with a long-term horizon should avoid feeling the pressure to overreact to headlines. It’s wise to maintain a long-term view and adjust based on evidence, not just speculation.

Also, to echo what Paul, our colleague, said in a previous video commentary, I think it’s important not to make material changes to one’s asset mix in response to who wins the election; it is not a reliable way to protect capital and can lead to costly mistakes. Over the long term, we believe there’s value in having stock market exposure, and investors who have properly diversified portfolios are usually rewarded for staying the course.

JKS: Right, so no knee-jerk reactions. 

MD: Exactly, but all that said, we all know that an election can introduce new policies and initiatives that will become the priority over the next term, and these can potentially change industries for the better or for the worse, and that is something an investor needs to consider. Even if it's "for worse," there may still be opportunities available from an investment perspective in that sector, or perhaps now is a good time to rebalance positions that are overweight to hedge against uncertainties. 

Interest Rates, Inflation, and the Role of Proactive Planning

JKS: Maria, I agree with you here, no surprise. So we’ve touched on the markets, but what we haven’t really addressed yet is interest rates, and obviously, we have equity funds at Capstone, but we also have fixed income holdings and funds, so the interest rate conversation is a big one. Now, while we don’t want to speculate what direction inflation is going in and what that will in turn do to interest rates, we are watching carefully. And by that I mean not only us as Portfolio Managers on the Private Wealth Team, but our Investment Management Team is always assessing the economic landscape and trying to find that balance between being proactive vs making knee-jerk reactions that can potentially be destructive to one’s progress. Maria, I know we could continue to dissect this so much more, but we should start to wrap things up. What’s your final take on all of this?

MD: My final take, Janet, is that it’s prudent and wise to be forward-looking and anticipate how the political landscape could affect our lives, and that includes our investments. But we also have to discern when action is necessary, and I’m of the belief that if you already have a well-constructed and diversified portfolio, you’re well-positioned. 

That’s not to say you won’t ever experience volatility in returns, but hopefully your underlying holdings are non-correlated enough such that not everything is being impacted to the same degree at the same time; that is the true power of diversification.

JKS: Thanks, Maria. That’s a great summary, and a great way to end another edition of Your Wealth Matters. Thanks for viewing, and see you next time.

MD: Bye!

While political events and elections can create short-term noise in the markets, they don’t have to derail your long-term investment strategy. As emphasized above, maintaining a well-diversified portfolio and resisting the urge to react to headlines is key to staying on track. With thoughtful planning, ongoing assessment, and guidance from trusted professionals, investors can navigate uncertainty with confidence.

If you’re unsure how current political or economic developments might impact your portfolio, the Capstone Asset Management team is here to support you. Reach out for a personalized conversation, and don’t miss the next episode of Your Wealth Matters for more expert insights on building resilient wealth.