You, Your Investments, and Presidential Elections
Since 2020 hasn’t been fun enough, let’s add a presidential election to the mix. Who will be our next president, and how will the markets react either way?
I’ve been a financial advisor for a while. This will be my ninth presidential election since I started in this business in 1985. I’ve noticed a very common thread: Many investors make avoidable investment mistakes during election years. I’ve heard it every time: “If so-and-so is elected, they’ll destroy the economy, and my investments along with it. I’d better take action now.”
The truth is, presidents have little control over either the $22 trillion U.S. economy (measured by gross domestic product), or the $133 trillion world economy. Their campaign speeches suggest otherwise, but there are just too many factors influencing economic growth for anyone to control them all.
Over time, the economy figures out a way to grow, in part because it’s actually driven by each and every one of us. This makes good sense. When you have over 130 million employees and employers in the U.S. alone, all trying to improve their standing, their influence on the economy is highly likely to be a much bigger factor than a president’s plans, whether or not those plans appeal to you.
The proof is in the historical pudding. Despite occasional dramatic dips, the economy and stock market have always eventually grown over time. According to Vanguard, the average annual return for the stock market has been 8.4% under Democratic presidents, and 8.2% under Republican leadership from 1860 to today. The average return has been 8.9% during election years and 8.0% during non-election years. Dimensional Fund Advisors reports similarly strong, bipartisan performance. Since 1928, the average return has been 11.3% during an election year and 9.9% in the other years.
You can read more at https://alliantwealth.com/resources/whitepapers.html, but here’s the quick take: If you’re tempted to deviate from your investment plan in response to the presidential elections, please don’t. I don’t know whether you’ll be heartened or disappointed by this news, but the truth is, the global economy is considerably bigger and more powerful than the person in the Oval Office … no matter who that person is.