How will the election impact your long-term investments? Will the election impact your long-term investments? Everyone is reading the headlines that are written for shock & awe and taking them as the gospel truth. Doing so can harm your investments. You need a long-term perspective on the stock market. Listen to this episode of Best in Wealth to hear how I think the election will impact your investments—and why you should not do anything about it.
Outline of This Episode
- [1:13] No one has a long-term outlook
- [4:33] The two questions I get asked
- [7:42] It does not matter who is in office
- [10:51] The annualized market returns for 9 presidents
- [15:43] Why you should embrace a long-term outlook
What should you do if either president is elected?
Most of the questions I have gotten recently about the stock market have to do with the election. They are one of two questions:
- What should I do with my investments if Biden is elected?
- What should I do with my investments if Trump gets re-elected?
I want to start by saying that the market does get volatile around election season because the market hates uncertainty. People make their trades based on millions of opinions. But if you check out this graph, it separates each president from 1929 to 2020 and shows what their stock market returns looked like.
There were 8 Republican presidents and 7 Democratic presidents during this time period. No matter who was president, the growth of your money has gone up in the long-run. There have been recessions, but the market always corrects itself. Keeping your money in the market is good for your long-term success.
There is NO discernible conclusion
Based on the information presented, it is challenging to draw any conclusion. The market does just as well when a Democrat is in office versus when a Republican is in office. There is no discernible pattern between the two.
We as investors want to see a connection so we can conclude what will happen in the stock market. But the reality is that there are so many different factors that impact the stock market beyond who is president. Investors want to simplify things to one driving factor, but that is not possible.
What about oil prices? Interest rates? How will other countries impact the market? What about the pandemic? What if we go to war? Any of these things—and thousands more—can influence the stock market. They impact stock prices every single day. That is not to say that the president can not have an impact on the stock market and the economy. But there are so many other factors at play.
What the annualized market returns tell us
What do the annualized market returns (of the S&P 500) for the last 9 presidents show us?
- Richard Nixon (Republican): annualized return of -2.9% per year
- Gerald Ford (Republican): annualized return of 20.2% per year
- Jimmy Carter (Democrat): annualized return of 11.7% per year
- Ronald Reagan (Republican): annualized return of 15.8% per year
- George Bush (Republican): annualized return of 13.9% per year
- Bill Clinton (Democrat): annualized return of 17.6% per year
- George W. Bush (Republican): annualized return of -4.4% per year
- Barack Obama (Democrat): annualized return of 16% per year
- Donald Trump (Republican) = based on my research, his approximate annualized rate of return is 8.25% per year
This is why it is hard to predict what will happen in the stock market. Other than a couple of years likely influenced by recessions, the returns between Republicans and Democrats is indiscernible. There is NO pattern.
The bottom line? Embrace a long-term outlookI advise you to put aside political views when it comes to your long-term investments. Doing so gives you the greatest chance of success. I am not saying it will be easy, but it is wise as a family steward. People are still going to work and innovate and make discoveries. Shareholders and companies are investing in growing their businesses regardless of who is in the white house. Your job is to make sure you are well-diversified in all areas of the stock market and stay invested.
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The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.