The upcoming presidential election is already dominating the news. While many people presume if their preferred candidate doesn’t win there will be negative economic fallout, more than 90 years of economic history tells us something different.
An Investopedia article, Investors’ Election Year Worries Could Be Overblown, Experts Say notes that its own survey determined that 61 percent of investors who responded said they’re concerned the election’s outcome will have negative ramifications for their portfolios.
Election Anxiety
Election anxiety significantly outpaced concerns about both the continued conflict in the Middle East and a possible recession.
Interestingly, the article cites a Nationwide survey that found 68 percent of Republican investors think the election’s outcome will have an immediate and direct impact on their finances while just 57 percent of Democratic investors think it will.
Yet, while it’s perfectly understandable that investors and savers will always feel anxious during election season, historical trends suggest there may be very little reason to be concerned. Moreover, while the past isn’t always a good predictor of the future, data suggests that investors should feel optimistic about what our upcoming election may mean for their bottom line.
Financial History 101
Let’s next do some financial history 101. Data tells us that markets have generally risen during presidential election years. In fact, the S&P 500 has shown positive returns in 20 of the past 24 elections going back to 1928. That’s growth in just over 83 percent of presidential elections during that 96-year stretch.
As for the average return during those election years, it was 11.58 percent which is higher than the S&P 500’s average return of 9.81 percent for every year since 1928. This suggests that while election years will always be a big news story — after all, we are choosing the leader of the free world — elections have historically had modest bearing on the economy and markets.
Stick to Your Strategy
The article quotes a financial services professional who shares an opinion that investors shouldn’t make big portfolio decisions because of the bluster and noise of an election season. Instead, be mindful, be prudent, and perhaps most importantly of all, stick to your financial strategy.
The article also quotes strategists from New York Life Investments who urge investors to expect our upcoming election to bring with it plenty of splashy headlines but to ignore it because all that breathless hyperbole rarely translates to economic impacts or shifting market outcomes.
Instead, maintaining focus on things like the fundamentals of elevated interest rates, moderating inflation, and recovering profits should empower long-term diversified portfolios to continue moving toward the investor’s long-term goals with confidence.
Three Key Takeaways
Let’s do a quick recap.
First, there’s no evidence-based correlation between the political party holding the presidency and stock market returns. No matter how much you may support one party and fear the other, the data suggests companies typically find ways to make money and produce positive returns.
Second, while past performance is no guarantee of future results, the stock market has had more positive years than negative since 1926, with the most significant negative years being the Great Depression in the 1930s, the tech bubble burst in the early 2000s, and the great financial crises that ran from 2007 to 2009. This demonstrates that significant negative market conditions are statistically less likely to occur than positive market conditions overtime.
And third, your behavior, not election results, are far more likely to determine your portfolio’s performance.
SOURCE
https://www.investopedia.com/investors-election-year-worries-could-be-overblown-experts-say8410521