Investing Around An Election
By: Cameron Diehl, CFP®
Friends – One of the most common questions I’ve been asked over course of the year is what we think will happen with markets around the election. And while I want to stress from the very beginning, this is in no way intended to be a political note, I did want to provide some historical context that we think is useful for investors in any election year.
In researching this topic, I found a presentation prepared by one of our partner firms, American Funds, particularly helpful. They put together a guide analyzing over 85 years of investment data across 22 election cycles. Based on their analysis, here are four key takeaways:
- U.S. stocks have trended up regardless of who won the White House – A $1,000 investment in the S&P 500 Index when FDR became president in 1933 would have been worth over $14 million today. During that time there have been seven Republican and seven Democratic presidents.
- Primary season tends to be volatile, but markets have bounced back strongly afterward – Stocks have returned 10.2% in the 12 months following primaries, compared to 5.8% in similar periods of non-election years.
- Investors often get nervous and move into cash during election years – Net asset flows into money market funds have been more than three times higher in election years than in non-election years.
- But staying on the sidelines has rarely paid off - it’s time, not timing, that matters most. – Stocks have had negative returns in only two of the last 20 election years (2000, 2008), and both declines were largely attributed to asset price bubbles rather than politics.
All of their findings are completely consistent with our most common advice to clients – develop a plan based on your goals, your life and your timeline – and invest accordingly based on historical, long-term perspective. Included as part of that plan should be enough comfort and flexibility to stick with your plan through the ups and downs and even view headline-driven volatility as potential buying opportunities, if appropriate for your circumstances.
If you’d like a copy of American Funds’ complete report, please let me know I’d be happy to share a copy.
The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.
