- Paul Allen, CFP, MS, is president of Wealth Strategies Partners and a 2018 Forbes Best-in-State Wealth Advisor.
Every four years, clients contact us with the same questions about the presidential election and how it may affect their financial planning. There is no question that election years are anxiety inducing. This year is no different, as our country continues to navigate a global pandemic with rising social tensions around the globe.
Some retail investors claim they will take their portfolio to cash or assume the market may crash if a particular candidate gets elected. One of my favorite sayings is: “Everyone is entitled to their own opinions but not their own facts.” Instead of trying to predict what the stock market will do with a Trump or Biden win, I encourage you to review facts and lessons from 100 years of stock market history. When we look throughout history, we see that elections have made essentially no difference when it comes to long-term investment returns. Although some media will tell you differently to build up drama for views, investors should filter out the day-to-day noise, bear history’s lessons in mind and keep a long-term view.
The stock market does not have a political party
The stock market has gone up – and down – under all presidents. Over time, the trajectory has been positive. According to a recent study by the Capital Group, a $1,000 investment made in the S&P 500 Index in 1933, when Franklin Roosevelt became president, would be worth over $14 million today. During that time, there have been seven Republican and seven Democratic presidents. Although both Democrats and Republicans like to take credit for good markets and blame the other for bad markets, the reality is investors tend to give far too much credit to elected officials for stock market performance.
Prepare for increased volatility
Historically, the stock market becomes more volatile in the months leading up to an election. This is expected. If there’s one thing markets dislike, it’s uncertainty, and a leadership change can create new unknowns. A new administration means the potential for increased regulations, higher taxes and other shifts that can influence investor sentiment and the trajectory of the market. Again, let’s focus on historical facts. In the same study, since 1952, the Dow Jones Industrial Average has climbed 10.2% on average during election years when a sitting president has run for reelection. Additionally, since 1980, the S&P 500 has fallen only twice in the first 12 months following election day. That’s just two times in the last 40 years.
Look beyond the headlines
News headlines change every day. They are notoriously more volatile than the markets themselves and may not accurately reflect what’s actually happening in the market. Don’t make decisions based on your emotions; they are the enemy of wise investing. Warren Buffett, one of the wisest investors of all time, once said, “I made most of my money by just sitting.” Follow Buffett’s lead. Be patient and focused on long-term investing, not short-term market events.
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Regardless of who wins the presidential election, the best way to prepare is through a comprehensive financial plan and a diversified, long-term focused portfolio aligned with your goals. More than likely, speculating and changing your investment strategy based on anticipated election outcomes will be damaging. Instead, tune out irrelevant information and noise, keep a long-term view of your wealth, and focus on what you can control.
Paul Allen, CFP, MS, is president of Wealth Strategies Partners and a 2018 Forbes Best-in-State Wealth Advisor. He may be reached Paul@wealthstrategiespartners.com.
Wealth Strategies Partners is located at: 5500 Maryland Way, Suite 133, Brentwood, TN, 37027. You can reach them at 615.457.3481. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Wealth Strategies Partners is not a registered broker dealer and is independent of Raymond James Financial Services.