(Only two weeks left before the Real Estate & Entrepreneurship Conference for Physicians on September 26-28, 2024 in Dallas, Texas. Time is running out to pick up a fun 15 CME credits. Attending the conference virtually may be your best option at this point. I hope to see you there.)
With elections on the horizon, there is a lot of blanket statements being made by both the Democrat and the Republican members, much of which is baloney. Things like “If they win it will be the end of our democracy.” “The economy will be better when I’m in charge.” “This is all part of a conspiracy.” “If they win it will start WWIII.” “If they get in office the economy will tank.” “I have no higher priority than the safety of Americans.” “We Will Cut Taxes more than they will.” “We are tougher on illegal immigration.” “The worst president in history.” “I’ll move to Canada if that person is elected.”
Silly statements like these are making people worry about what will happen to their investments based on the outcome of the upcoming election. Some are pulling their money out thinking there will be a big crash while others are doing just the opposite.
But when you really think about it, does any of this matter to our money? Do investment results differ based on which party is in power? Today’s guest writer is a financial planner with an MBA who provides some clarity as to what really happens to our money in an election year. The results might just surprise you. So, let’s look at whether your money really cares who you vote for?
With the 2024 presidential election heating up, there will be a lot of headlines between now and election day. It’s normal for investors to worry when elections are on the horizon. These results seem likely to impact the economy and the stock market, for better or for worse. On a short-term basis, election headlines have the power to move markets and create stock market volatility. Based on the history of the markets and elections, however, such worries are largely unfounded, at least so far as long-term stock market performance is concerned.
In general, there is minimal correlation between the individuals who occupy the Oval Office and how markets have performed during their years in power. Equity returns have been strikingly similar under both parties since the Great Depression. On an annualized basis, the median performance of the Dow Jones Industrial Average under Democratic presidents during this period has been 7.7% vs. 7.9% under Republicans. Since 1932, we have had 23 elections. Stock market returns have been positive during 78% of the ensuing presidential terms.
While, at a very high level, it’s possible to anticipate potential policy impacts, we believe at this point in time no one can predict which party will control the House of Representatives and the Senate, and what sectors, industries, or stocks may benefit from the next administration’s policies.
Larger drivers of the stock market and economy will relate to interest rates, monetary policy, valuations, corporate profits, employment (and financial health of the consumer), the global economy, and geopolitics. So in the months to come, we recommend that you don’t let election anxiety impact your investment choices. For the most part, money and politics can be thought of separately. Furthermore, over the course of decades, investors who have stayed invested regardless of election results have fared far better than those who avoided the market because one party or the other was in power.
The best course of action will be to expect some volatility as the election approaches, review your long-term investment plan, rebalance your portfolio and commit to staying invested regardless of the outcome in November. Portfolio positioning should generally be dictated by a long-term plan rather than by current events. While the past is not a guarantee of the future, history suggests exiting the market due to the outcome of an election (or because an election is upcoming) is not a sound decision.
(Editor: So, there you have it. Make an investment plan for the long haul and little things like elections will not ruin your plans. I have never changed any investment plans due to outside factors like elections, pandemics, a new all-time high for the stock market, interest rate changes, or a recent drop in the market. You shouldn’t either. Invest for the long haul and you don’t need to even look at your investments.)
David Rosenstrock, CFP®, MBA, is the Director and Founder of Wharton Wealth Planning (www.whartonwealthplanning.com ). He earned his MBA from the Wharton Business School and B.S. in economics from Cornell University. He is also a CERTIFIED FINANCIAL PLANNER™.
