Barack Obama has been re-elected as the president of the United States.
A nail-bitingly close election, with the economy consistently being named as the top issue, has been decided.
Here are a few things to keep in mind.
What should I do with my investments?
Probably nothing different than you were before. If you were happy with your portfolio and investing style three months ago, you should be happy with it three months from now. Making investment decisions while heated about an election outcome puts you in the express lane to regrettable decisions. If you truly want to tweak your portfolio based on tonight's election, here's my advice: Do it next week. Take a few days to cool off. Think it over. Talk to others about it. A few months ago I wrote about the history of market calls based on winners of presidential elections. The vast majority are dead wrong in hindsight.
What happens next?
The odds are good that, no matter who won tonight, the economy will do much better over the next four years than it did over the past four. Housing construction and auto sales are set up for a big rebound, the boom in domestic energy production is simply staggering, and household debt payments to income are at the lowest level in almost two decades. The tailwind of those three combined shouldn't be underestimated.
Things have been looking up for a while, and President Obama's victory tonight neither solidifies nor weakens that view. Ezra Klein of The Washington Post wrote a smart article yesterday (before the election results) with the headline: "Neither Obama nor Romney will turn America into a bleak hellscape." Look past election-season hyperbole, and neither candidate was radical in any historical sense, and would have inherited an economy with the wind at its back.
The big asterisks ...
Enjoy the evening, Mr. President, because you're soon going to be facing with one of the most serious threats to the economy in years: the fiscal cliff. On Jan. 1, $607 billion in tax increases and spending cuts mandated by previous laws (some more than a decade old) go into effect. Neither Republicans nor Democrats want to see this happen in its entirety, but the two parties (surprise) can't agree on how to mitigate it. So, now begins what is likely to be weeks of vicious bickering and backroom negotiations. No one knows how this will play out. My guess: Obama will propose a fairly small deficit-reduction package extending over the next six months, and the hard decisions on long-term budget reform will be kicked down the road anew. And you thought political season was over ...
What did we learn tonight?
Legions of pundits made predictions suggesting a Mitt Romney win was a sure thing. But there are no sure things. Things change, and you have to be prepared for alternatives. Elections are a good reminder that predictions -- including those about investments and the economy -- should be done using probabilities, not certainties.
What do you think about tonight's results? Share your thoughts below.
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