Although history can be a helpful guide, the future holds no promises. That being said, it is not worth trying to predict the future and certainly it is not worth subjecting the long-term success of your financial plan on the speculative results of who will potentially win the Executive Branch.
Much happens during the traditional election year, and this year it may seem as though this time is different and there is more to be wary of. However, indulging your political fears or expectations by making changes to your long-term plans could prove to be costly. Historically speaking, having a Democratic President or Republican President has had little impact on U.S. equity returns on a long-term basis over nearly the last 100 years. The common trend is that the historical trajectory of U.S. equities has been a steady climb upward no matter which party is in the White House. See the chart below:
Stock market returns by president. (Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.)
What to expect
One should be wary of any bold predictions. One of the most fitting examples of this is our last presidential election. On election night in 2016, as more and more state results came in indicating the increased likelihood of a Trump victory, U.S. stock market futures plummeted rapidly. In pre-market trading that night, the S&P 500 fell more than 5% triggering the first layered “circuit breaker” to halt trading. Less than 1 day later, as the market closed the day following the election results, the index closed over +1%.
Predictions can quickly go awry, and the market can consume new facts and information much sooner than you might expect.
However, Presidential elections have frequently been accompanied by short-term volatility in the stock market and there is no reason to think this year’s election will be any different. In particular, the months leading up to an election, as the markets have never been receptive to uncertainty.
Most investors, especially those that have worked so hard to design a tailored long-term financial plan with their advisor, should focus on putting their personal feelings about politics aside and objectively assess what is best for them to achieve their goals. For most, the answer will undoubtedly be staying the course no matter who occupies the White House.
Without direction from a financial planner, navigating your finances amidst a pandemic, recession, and presidential election can prove to be challenging. There are a few key points you may want to consider to keep you on track:
- Journalism and headlines are supposed to grab your attention, nothing else. Election years are a huge opportunity for the media that only come around every four years. Take what you read with a grain of salt, as there is a race going on to create content and capture eyeballs.
- Keep a 30,000 ft perspective. Referencing the chart displayed at the beginning of this article, we would like to remind you that stock markets have gone down and up regardless of who was President. More importantly, over time the trajectory of the stock market has consistently been on the rise. Do not get caught up on the “what ifs” over who will be elected and lose sight of the big picture and your long-term plan.
- Stay focused on what you can control. Stress less on what “might happen” and instead try to focus your energy on the variables of your long-term financial plan that you have control over (diversification, savings, cash-flow, etc.).
Waterford Advisors, LLC’s financial planners are always available to answer any specific questions that you may have. Please feel free to contact our office at any time.
Source: McKenna, Kristin. “Here’s How The Stock Market Has Performed Before, During, And After Presidential Elections.” Forbes, Forbes Magazine, 18 Aug. 2020, www.forbes.com/sites/kristinmckenna/2020/08/18/heres-how-the-stock-market-has-performed-before-during-and-after-presidential-elections/.