The Election & Your Investments
Since this is my last note before November 5th, I figured I should send a reminder that election outcomes are not all that important for the stock market.
1) Starting Positive Often Means Ending Positive
In the first 8 months of the year, the US stock market was up 19.5%. It was the third best start to an election year since 1928. But when it comes to the stock market, what goes up does not always come down.
Historically, election years that have started positively, have also ended positively regardless of which party prevailed.
2) Stocks Have Continued Higher Regardless of the Party Holding the Presidency
If you invested $1,000 into the S&P 500 in 1926, reinvested your dividends, and paid taxes from outside sources, the original position would have grown to be worth more than $17 million today. During that time there have been 6 periods where Republicans held the office and 6 periods when Democrats held the office. The secret has been staying invested.
History tells us that political fortunes swing like a pendulum and the party in power today will not be in power forever. In fact, about 50% of the time, your preferred candidate will not control the office of the President. As an investor, the secret to success is staying invested . . . even when your candidate loses.
The purple lines of the above charts represent a person that stayed fully invested whereas the red lines represent a person that only invested when a Republican was President, and the blue lines represent a person that only invested when a Democrat held the office.
Don’t shoot yourself in the foot by exiting the market if your candidate loses.
Even over a relatively short time horizon, the person that stayed fully invested turned $100,000 into $372,000 compared to the Democrat-only investor that ended up with $205,000 or the Republican-only investor who ended up at $181,000.
Over longer periods, like the 70-year chart on the right, staying invested was the difference between ending up with $1,880,000 versus $60,000 or less.
3) US Stocks Have Tended to Lose Money Less Often in Presidential Election Years
Going back to 1928, the stock market has only declined, on an annual basis, four times during election years. But, most importantly, those declines didn’t occur because of the election. They occurred because of more important things going on in the world.
In 2008 we had the Financial Crisis, in 2000 we had the Tech Bubble bursting, in 1940 we had WWII, and in 1932 we were in the middle of the Great Depression. These are the kinds of events that cause the stock market to go lower. Not Presidential elections.
4) Regardless of Who Wins the Election, Half the Country Will Immediately Like the Economy More and Half the Country Will Immediately Like the Economy Less
At some point, if your party loses, you may try to rationalize your decision to abandon your financial plan by saying something like, “The economy is terrible right now and only getting worse. I just need to sit in cash for a while.”
Just remember your thoughts on the topic are likely just a reflection of how you voted.
As this above chart points out, a person’s response to the question of “Overall, do you think the economy is getting better or worse?” has nothing to do with numbers or the economy and everything to do with the party of the President.
__
On a personal note: The boys may be too old to appreciate a family theme for Halloween but at least my daughter is still into it.
