Investing During An Election Year

How to Invest in An Election Year

Investing during an election year brings anxiety to many people, especially when the stakes are high. Every election cycle, we’re told this is the most critical election of our lives. While that may or may not be accurate, we often let that idea spill over into the other parts of our lives. 

Many investors let the anxiety and emotions associated with an election spill into their investment decisions. At a high level, that seems like an intelligent decision, right? Investors are confident that their political party will pass legislation and policy to generate the highest investment returns. 

As a financial planner, I’ve observed and participated in these conversations my entire career. Therefore, I decided to share my opinion on how you should invest based on who controls Congress and The Whitehouse. Does one political party fare better than the other?

My goal is not to push my political agenda with this piece. I will leave my emotions and political beliefs at the door and challenge you to do the same. 

What are Investors Buying?

Investors are buying into companies, not political parties. Understanding this idea is essential because the party controlling Congress and The White House is just one-factor investors consider.  

Investors are purchasing a company that (hopefully) grows, reinvests cash flows, or has a positive net income. Investors hope to be compensated in the form of dividends or stock price appreciation.

What Does The Data Say About Buying or Selling Stocks During An Election?

To offer unbiased advice, I’m looking at data rather than letting my emotions and political beliefs get in the way. I’m an evidence-based investor that looks at academic research to make decisions. 

Over long periods, markets continue to march higher regardless of which party is in control. The same is true regardless of who controls The White House and Congress. 

Economic Impact Of Congress & The White House 

I’m not saying that past presidents didn’t impact the economy. Many presidents did have an impact on the economy and markets. Economists and the financial news media will debate their implications. Considering this, I can’t find evidence that their take should impact your investment decisions. 

What Are Stock Market Returns During Presidential Terms?

The image below shows annualized returns for every president dating back to the start of the great depression with Herbert Hoover. The only US presidents dating back to 1929 with negative annualized stock market returns during their terms are President Hoover, Roosevelt, and Bush. This data reflects the S&P 500 index, which tracks the 500 largest companies in the US by market capitalization. 

The average annualized return over that period is 11.06%. The rate of return coupled with a reasonable savings rate invested each year is more than enough to achieve your goals. Yet, so many investors let their emotions and personal beliefs get in the way of achieving their goals. 

Chart showing the annualized stock market return by US President

What Are Stock Market Returns When Each Party Controls Congress?

Investing based on who controls Congress is unlikely to lead to better investment outcomes. The image below shows that it doesn’t matter who controls Congress over long periods. The data shows that keeping a long-term-minded approach and ignoring who controls Congress will lead to better outcomes. 

Of course, Congress can pass legislation that will impact our economy and stock market returns. However, Congress is one piece of the equation, and many other factors affect market returns. 

What are stock market returns when each party controls congress?

What Does the Data Say?

You’re not alone if you watch the news looking for answers and guidance regarding managing your investment portfolio. As humans, we crave certainty. We will do almost anything to achieve safety and confidence. 

When it comes to investing, uncertainty is what causes many to fail. If the political party we believe in controls the Whitehouse and Congress, we should have positive investment returns. Conversely, if the political party we oppose holds office, many think they will experience poor returns. 

The data above doesn’t show a pattern for investing when a particular president or political party takes office. The data shows that you’ll see positive returns with long-term investing. 

Does The Financial And News Media Help?

Imagine if the financial and news media preached disciplined investing over long periods into low-cost investments. While this is generally a suitable recommendation for investors, the financial and news media wouldn’t keep viewers returning to their platforms. 

Ultimately, their goal is to keep you glued to the screen, which is accomplished by creating concern and uncertainty. When they keep you tuned in, you’re there to consume the advertisements baked into their content. 

The Takeaway

There is no evidence that investing based on who controls Congress, or The White House leads to a better investing experience. The financial and news media will try to convince you that one is better than the other, depending on their agenda. The data shows from a historical perspective that you’re better off not mixing politics and your portfolio. 

I’ll never suggest you shouldn’t care about who holds office. By all means, please keep your political convictions. However, you’ll set yourself up for success if you diligently save and invest for the long term, regardless of which political party has power. Keep a long-term approach to investing and stay the course.

 

Author: Cecil Staton, CFP® CSLP®

Author: Cecil Staton, CFP® CSLP®

I'm a fee-only financial planner dentists & physicians with student loans give a purpose to their paycheck.

I left the large financial institutions to start my own RIA. I did it so people could pay for real planning and not just an agenda to sell a hidden product. As a fiduciary, Arch Financial Planning, LLC was built on that promise by delivering non-cookie-cutter plans that provide solutions to achieve their goals.

Who do I serve?

Age: Dentists & Physicians between 28-45 years old
Goals: Pay off student debt, start a practice, and grow their wealth
Target: High-earning doctors with student loans
Location: Virtually anywhere in the U.S.

Disclaimer:

This website (the “Blog”) is published and provided for informational and entertainment purposes only.  The information in the Blog constitutes the Content Creator’s own opinions and it should not be regarded as a description of services provided by Arch Financial Planning, LLC or Cecil Staton, CFP® CSLP®.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about personal financial planning.  The views reflected in the commentary are subject to change at any time without notice.

Nothing on this Blog constitutes investment advice, performance data, or any recommendation that any security, portfolio of securities, investment product, transaction, or investment strategy is suitable for any specific person.  From reading this Blog we cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Blog are just that – an opinion or information.  You should not use this Blog to make financial decisions and we highly recommended you seek professional advice from someone who is authorized to provide investment advice.

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