We know that US Presidential Elections can be divisive and unsettling, this year will be no exception. But when it comes to investing, we recommend continuing to have a long-term focus, this can position you for a brighter future regardless of the outcome at the polls. We have seen that over-reacting to the short-term volatility during an election cycle can be detrimental to your investment returns. So let’s talk about what either outcome may look like.
Capital Group recently put out a Guide to Investing with Confidence in an Election Year and here is what they learned:
- U.S. stocks have trended up regardless of whether a Republican or Democrat won the White House. A $1,000 investment in the S&P 500 Index when FDR became president in 1933 would have been worth over $14 million today. During that time there have been seven Republican and seven Democratic presidents. This can be seen in the graph below:
- Primary season tends to be volatile, but markets have bounced back strongly afterward. Stocks have returned 10.2% in the 12 months following primaries, compared to 5.8% in similar periods of non-election years. See the graph below.
- Investors often get nervous and move into cash during election years. Net asset flows into money market funds have been more than three times higher in election years than in non-election years.
- But staying on the sidelines has rarely paid off. It’s time, not timing, that matters most. Stocks have had negative returns in only two of the last 20 election years (2000, 2008), and both declines were largely attributed to asset price bubbles rather than politics.
In summary, election results have had very little impact on long-term investors. Net asset flows into money market funds have been more than three times higher in election years than in non-election years. Historically, investors often sit on the sidelines during election years out of fear and uncertainty, but that’s rarely a winning strategy. Markets have been more volatile during primary season, but tended to rise strongly thereafter. Investors who were fully invested or made monthly investments did better than those who stayed in cash. History shows that markets have risen whether a Republican or Democrat has been in office. It’s important to stay the course through primary season to benefit from any potential rally once the final candidates and eventual winner emerge. The key is to avoid trying to time markets around politics. Bottom line, don’t let your political fears drive your investment decisions, stay healthy, safe, and please GO VOTE.
- Capital Group. “Guide to Investing in an Election Year. Hope to survive the uncertainty and invest with confidence. https://www.capitalgroup.com/advisor/insights/articles/3-investor-mistakes-election-year.html
Any opinions are those of Faith Doyle and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.