How The Election Might Impact The Stock Market & Your Portfolio
Here we are on the eve of the most contentious election mine eyes ever did witness. That’s not much time, but I’m working on it every single day! Regardless of your political leanings, I hope we can all agree that the end of the constant text messages, phone calls, social media posts, tv and radio commercials, should be a welcome respite come Wednesday. Until then, many people have been wondering what the election might mean for their investment portfolios.
Politics intersect money in ways I won’t be able to capture in a blog post. But I do hope to be able to convince you to take your eyes off what happens tomorrow and focus your gaze on the horizon. Because that’s all the stock market cares about. Stock markets may see bouts of turbulence until we have a clear winner, and as an investor, I encourage you to do a little more shrugging.
Up, Up, & Away Anyway
The stock market usually rewards long-term investors. I would be hard-pressed to find a serious investor that maintained they had a long-term view AND were concerned by an office with a term limit. Eight years just isn’t that much time. I’d be willing to bet you have socks in service longer than some presidents!
The truth is, the market cares about the person in the White House a lot less than people think. As you can see below, the market has steadily grown regardless of/in spite of/because of (pick your flavor based on ideologies) the President. Hence my suggestion to get those shoulders bobbing up and down. The market really doesn’t care about political parties and as an investor, we might all benefit from a little more shrugging too.
As we can see below, there really isn’t much to be said about market performance by president or party other than…it goes up anyway. As investors, take solace in the fact that your investments, if properly positioned, should reward you for staying in the game no matter what the political winds look like. Learn more about market performance by specific president here.
Source: Capital Group
What If I Don’t Keep Socks That Long?
I hear ya. Maybe you refresh the sock drawer more often than I do. Welp, good news. The market is also largely indifferent to presidential terms in the short-run too. Here we have a look at the growth of $10,000 if it was invested at the start of each election year going back to FDR. I wasn’t around for that one, and I bet if you can read this, you weren’t either. The graph then shows us what each $10,000 investment was worth ten years after the initial investment. Spoiler alert. Only once, over a ten-year time period, would you have lost money (George W. Bush, if you’re interested). I’ll take those chances all day long. Once again, the stock market cares more about future corporate earnings than the person in the White House.
Source: Capital Group
Stuck In Traffic
I was supposed to have gotten married over the weekend but COVID-19 had other plans. Instead, we took a nice sojourn to Stowe, VT and on the way home we passed an exit for the Lincoln tunnel. It reminded me of a time when I was in high school and had gone on a field trip to NYC, only to get stuck in traffic for hours on our way home. Gridlock, as they call it.
Suppose there’s a difference between the White House and Congress. Are those shoulders still warm? You guessed it, the market doesn’t care. Political gridlock is not an ideal market environment, but the market has historically looked beyond that as well.
Source: Capital Group
This chart walks us through the S&P 500’s average annual return under three scenarios. Suppose your candidate wins the presidential election, but Congress goes the other way? As an investor, be prepared to be indifferent. Historically anyway. 7.4% average annual rate of return in a WORST CASE scenario is outrageously productive. At that rate, your money would double about every 10 years. That’s hard, in a good way, to reconcile with what might come to mind when you hear the term “gridlock.”
Stay In The Game
I’ve written extensively in the past about how bad market timing is and how costly it can be. Instead, stay invested. Focus on what you CAN control. Keep your eyes fixed on your investment horizon. The future is probably brighter and more profitable than you’re giving it credit for.
-Brendan