Investment Perspective: Investing and Presidential Elections

by | Aug 19, 2020

Investing & Presidential Elections 

With the US presidential election less than three months away, many investors worry about the impact the election will have on their portfolios. A recent article from
Commonwealth’s CIO Brad McMillan gives us a few insights to consider as we approach the election:
  • Politics has less of an effect on the markets than we think
    • “Decade after decade, markets have moved ahead as the economy grew, regardless of the party in power.”
    • “The average Republican administration [since 1900] saw gains of 3.5% per year, while the Democrats saw gains of almost twice as much, at 6.7% per year.”
  • This uncertainty is normal
    • Both sides always exaggerate the impact of losing the presidency
    • Regardless of who is elected, radical change is unlikely because the “American political system is designed to be hard to change.”
An example from a Capital Group article sheds some more light on elections and investing:
  • “Consider the historical performance of the Standard & Poor’s 500 Composite Index over the past eight decades. In 18 of 19 presidential elections, a hypothetical $10,000 investment made at the beginning of each election year would have gained value 10 years later. That’s regardless of which party’s candidate won. In 15 of those 10-year periods, a $10,000 investment would have more than doubled.”
There will most likely be market volatility around election time, but this shouldn’t change our long-term investment outlook. We should not adjust our long-term plans based on short-term fears. The article from Capital Group puts it succinctly when it states: “By design, elections have winners and losers, but the real winners have been investors who stayed the course and avoided the temptation to time the market.”