They say that the majority of Americans don’t tune into politics during an election year until after Labor Day. This may be why the financial media is now in overdrive with TV advice on how to position your investment portfolio if one candidate or political party wins over the other.
Whether you lean left or right, I know that many of you are very passionate about politics. One of the most common questions or concerns that we hear from 401(k) participants or wealth management clients relates to the short and long-term impact on the stock market that this year’s presidential election may have. Fortunately, there is data going back to the 1920s which provides us with a clear picture of how markets are impacted by elections. The answer is that elections have had very little short-term impact, and virtually no long-term impact on market returns.
Here is a chart which shows the growth of a dollar invested in the S&P 500 under presidential administrations going back to 1926. It turns out that the stock market has consistently gone up over time regardless of which party controls the White House.
This tells us that investing based on politics has historically been a bad idea. The future expected return for equities (stocks) is always positive and companies will adapt quickly to any political, regulatory, or tax environment to stay profitable. Attempting to jump in and out of the market in your investment portfolios based on election results almost always leads to market underperformance and a likely reduction in the future value of your investment assets.
Scott Johnson is the CEO of DecisionPoint Financial, LLC. He is a Certified Financial Planner™ and an Accredited Investment Fiduciary. He and his firm provide comprehensive financial planning and investment management services to individuals and institutions. Scott can be reached at (480) 553-6249 or scott@dpplanners.com. For more information, visit decisionpointfinancial.com
DecisionPoint Financial, LLC is a Registered Investment Advisor. All investments involve risk. Risks associated with investing in securities include increased volatility and loss of principal. Past performance is no guarantee of future results. The information herein is educational in nature and does not represent investment advice. All rights reserved. DecisionPoint Financial, LLC © 2020.