By: AnnaMarie Mock, CFP ®
Should long term investors focus on the upcoming presidential elections from an investment standpoint? There is never a shortage of opinions on market movements as election day approaches. This media-driven rhetoric can influence people’s perceptions between the administration in power and its influence on the markets.
The day to day volatility in the markets is less meaningful for a long-term investor. According to Dow Jones’s data team, the US markets tend to decline 75% of the time the day following the election making the average market change –0.90%. Below depicts the top 10 declines in the US markets since 1928:
However, the S&P 500 from 1928 to 2016 experienced positive equity returns 19 out of the 23 presidential election years.
Two out of the four negative years occurred during US economic distress – in 1932, with the Great Depression and 2008 with the Great Recession.
This suggests that during presidential election years, the equity markets are more likely to increase regardless of the presidential nominees and outcome. We cannot use this as a steadfast rule but can rely on past trends to gauge what may happen.
The chart below shows the hypothetical growth of $1 invested in the S&P 500 Index from January 1926 to December 2019. The red (Republican) and blue (Democrat) denotes the political orientation of the President in office that term. Both political parties experienced periods of growth and declines while having their parties official in office, and there is no visible pattern of stronger returns when any specific party is in office.
The key takeaway is that historically, markets over time have provided positive returns irrespective of which party is in office. The optimal long-term investing strategy is to minimize revisions to the portfolio caused by “noise” from the news and trying to predict election results.
Source for graphic: Dimensional.com
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.
Bio’s for Constant Contact articles
Author’s Bio
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.