Performance of US stocks in election years and non-election years.
Investors should not be fearful in regards to the upcoming presidential election. And they definitely shouldn’t let politics derail their long-term financial plans. Why? Because financial markets have historically rewarded investors who stay the course. And while it could seem counterintuitive, U.S. stocks have historically been less more likely to suffer losses in election years than in non-election years. These charts will help explain what investors should expect from the stock market this election cycle.
What to expect from the S&P 500 through the presidential election?
In addition to quite a few campaign ads, investors can expect increased market volatility from September until Election Day. But that is not any reason to panic. The U.S. stock market has risen over time – no matter who’s running for office. And while past performance just isn’t indicative of future results, investors should take comfort within the Wealth of information we have now about financial markets and elections.
According to BlackRock, US stocks recorded losses almost twice as high in years without elections … [+]
While stocks historically performed higher (on average) when there have been no elections, years that led to losses were far less common in election years. According to data from BlackRock, the U.S. stock market was almost twice as more likely to suffer losses in a no-election yr (30% of the time) as in an election yr (17%). When you concentrate on that annual returns across all years were negative about 26% of the time, election years don’t seem quite so scary.
What can we expect from the stock market after the election?
According to data from Dimensional Fund Advisors, the S&P 500 performed on average almost 1% higher in an election yr than the yr after. However, in each cases, simply holding onto investments produced double-digit returns. Returns during and after an election yr were even barely higher than the common returns for all years through the same period.
Returns on US stock markets fell sharply across the presidential election.
Again, the present government just isn’t the most important driver of economic markets. Of course, the market hates uncertainty, including political ambiguity. But the performance of stocks and bonds is more influenced by other aspects, resembling the economy, rates of interest, geopolitical shocks and the health of the complete economic system.
Don’t let political preferences thwart your financial statement
Regardless of your political preferences, there’s loads of evidence that investors should keep politics out of their portfolios. According to YCharts, a $10,000 investment within the S&P 500 in 1950 would equal over $3 million by March 2024 (not including dividends), a mean annual return of about 8%.
Over time, markets have rewarded investors who keep politics out of their portfolios.
However, should you only invested through the Republican presidency, the common annual return would fall below 3%. If you simply invested through the Democratic presidency, the common return would rise to about 5%. But that might still be almost 3% – per yr – lower than should you invested during all presidencies.
What should investors do to survive the election cycle?
The media makes it hard to disregard the political noise, especially because the election approaches. But investors shouldn’t depend on doom and gloom headlines either. It’s also vital to attempt to separate your investment portfolio from the party or person you are voting for. Investments must be evaluated on their very own merits, without the shadow of emotion.
And remember: The consequence of the election may haven’t any real impact in your portfolio – even should you are disillusioned by the outcomes.
