Investing & Presidential Elections
With the US presidential election less than three months away, many investors worry about the impact the election will have on their portfolios. A recent article from
Commonwealth's CIO Brad McMillan gives us a few insights to consider as we approach the election:
- Politics has less of an effect on the markets than we think
- "Decade after decade, markets have moved ahead as the economy grew, regardless of the party in power."
- "The average Republican administration [since 1900] saw gains of 3.5% per year, while the Democrats saw gains of almost twice as much, at 6.7% per year."
- This uncertainty is normal
- Both sides always exaggerate the impact of losing the presidency
- Regardless of who is elected, radical change is unlikely because the "American political system is designed to be hard to change."
An example from a Capital Group article sheds some more light on elections and investing:
- "Consider the historical performance of the Standard & Poor's 500 Composite Index over the past eight decades. In 18 of 19 presidential elections, a hypothetical $10,000 investment made at the beginning of each election year would have gained value 10 years later. That's regardless of which party's candidate won. In 15 of those 10-year periods, a $10,000 investment would have more than doubled."
There will most likely be market volatility around election time, but this shouldn't change our long-term investment outlook. We should not adjust our long-term plans based on short-term fears. The article from Capital Group puts it succinctly when it states: "By design, elections have winners and losers, but the real winners have been investors who stayed the course and avoided the temptation to time the market."
Please reference the following link for Brad McMillan's article: https://blog.commonwealth.com/independent-market-observer/how-will-the-presidential-election-affect-the-stock-market
Please reference the following link for the article from Capital Group: https://www.capitalgroup.com/advisor/insights/articles/election-watch-2020.html?sfid=1043900913&cid=80139766&et_cid=80139766&cgsrc=SFMC&alias=E-btn-LP-12-A2cta-Advisor