The Election & The Stock Market
2020 has been an interesting year... During an election year with the backdrop of a pandemic-driven recession, how should you be thinking about your investments? Watch this video to see how the stock market has performed historically under different political parties, and to get some guidance on how to invest going forward.
As always, please feel free to contact us with any questions.
We’ve been getting a number of questions from people about investing during this presidential election, so we wanted to take a couple minutes to give you some things to think about as you consider how you are invested during the next couple weeks.
Many people have concerns about their investments with the upcoming election. This was also the case in 2016, 2012, etc. The first thing you need to do is remove the emotion that is tied to the politics, not the investments. Once you get that obstacle out of the way, we can look at the data and say, “Is there a pattern?” Let’s take a look...
So looking at this graphic, it starts at President Nixon and goes all the way to President Trump through March of this year (2020). And you can see, during most of these time periods, there is an annualized positive return. There are just a few exceptions with President Nixon and President Bush. But you can’t necessarily say that one Republican or one Democratic President does better than the other. Whoever is in the White House may have some policies that affect the stock market, but there is much more to it than that.
So, let’s take a look at George Bush Jr. He has the lowest rate of return of -4.4%. Obviously, that is largely due to 9/11, which you could argue he had nothing to do with. This just shows that it doesn’t necessarily matter if it is a Republican or a Democrat in the White House – The market responds to other issues than simply who is in the White House.
So, although the President may have some impact on the stock market, it is important to know that there are hundreds, if not thousands, of variables that also have an impact on stock market returns. Some of those may be interest rate changes, oil prices, and technological advances. There are a variety of things that drive the stock market. So, it is important to remember as an investor that you are investing in a company, not a political party. And companies focus on serving their customers and growing their business, regardless of who is in the White House.
There is always something out there that would make us pause and think about investing during this time, and that is a normal thing to think about. So that’s why we take a minute and look at the numbers. As you can see in this chart, if you look back over a number of the events that have happened that seemed like a big deal at the moment (Savings and Loan Crisis, Hurricane Katrina, the 9/11 Attacks, and so on…), those were logical times to ask questions. “Is this a good time to be doing this?” “Should I change how I’m investing?” “Should I wait and invest later?” All those questions are normal to ask, but as you can see on this chart, the market moves up and down, but it over time, it has historically continued to provide a positive return.
The question of investing during the presidential election is the same as we get during other times. “There’s a pandemic, is this a good time to invest?” “The market is at an all-time high, is this a good time to invest?” Those are all questions about timing the market, which we know is extremely difficult to do consistently. So the best thing to do is to look at the data, talk yourself down emotionally, and continue with the plan that you’ve thoughtfully put together.