Broker Check

Your Investments Don't Care Who Wins the Election

J. Timothy Corle, CPC, CFP®

President, CEO

Each presidential election cycle, people get anxious.  This year is certainly no different, as the question I get more frequently than any other these days is…”What is going to happen to the markets if Trump wins, or if Biden wins….”  And when I get this question, it usually ends with their personal political view and how the sky will fall if their candidate does not win.

My answer is always the same, your investments don’t care who wins the election.  A disciplined and well laid out investment and financial plan was crafted to run the span of your time horizon, not the election cycle.

But don’t take my word for it. One of America’s most famous and successful investors, Warren Buffet, once said “If you mix politics with your investment decisions, you’re making a big mistake.”  I couldn’t agree more!

The thought or discussion of politics creates an emotional response in just about anyone who chooses to focus on it, and emotion can cloud one’s judgement.  You need to stay focused on your time horizon and not let short term emotions derail your plan.

This election season has been marked by the combination of a pandemic, a global economic recession, widespread civil unrest, and extreme market volatility.  It is natural to be anxious and want to run for cover, however, history has shown us that what matters most is not election results but staying invested.

The chart below shows the historical performance of the S & P 500 Composite Index over the past 80 years.  In 18 of 19 presidential elections, a hypothetical $10,000 investment made at the beginning of each election year would have gained in value 10 years later.  In 15 of those 10-year periods, your investment would have more than doubled.

If you are nervous these days, trust me you are not alone!  Presidential campaigns often highlight the worst of the country’s problems, and they intentionally amplify negative messages in order to trigger an emotional response to vote one way or another. 

Historically speaking, presidential election years tend to make people fearful enough to want to move their money from equity investments to money markets, and effectively sit on the sidelines until it’s over.

Moving to cash in election years can reduce long-term portfolio returns.  To verify this, The Capital Group analyzed investment results over the last 22 election cycles to compare three hypothetical investment approaches:  1) being fully invested in equities, 2) making monthly contributions to equities, and 3) staying in cash until after the election.

The investor who stayed in cash until after the election had the worst outcome of the three portfolios in 16 out of 22 periods.  The hypothetical investors who stayed invested or made consistent monthly contributions during election years came out on top most of the time.

You cannot predict, much less time, what the stock market will do around the election, or any other time for that matter. Don’t let your emotions be your guide when it comes to your investments.  The only way you can possibly come out on top in that event is to properly time the market, not once, but twice!  Getting out is one decision, when to get back in is the other. Political campaigns generate fear because fear motivates an emotional response to get you to act.  I’m not writing to tell you who you should vote for.  I am telling you that when it comes to your investment policy, do not give into the fear and make a change based on emotion.

So, which political party has been better for investors?  Historically speaking, there was essentially no difference when it comes to long-term investment results. 

No matter who gets elected, nor what their policy positions are, great companies adapt to change, continue to create value, innovate, and employ the financial discipline required to continue to thrive.

And no matter who gets elected, or what policies they implement, we get to have our collective voices heard just 23 months into the term by voting to change the Congress in the mid-term elections.

So, whether you’re a “Make America Great Again”, a “Build Back Better”, or any other campaign supporter, I encourage all of you to get out and vote for your favorite candidate.  The right to vote is one of the many things that make this country great; just know that when it comes to your long-term investment strategy, your investments don’t care who wins.