With the election coming up, you might wonder about stocks during a presidential election year and how it could impact your investments. Guess what? We wonder that too! But nobody knows the future. Here are some interesting lessons that can help us navigate the markets AND our emotions during times of political uncertainty.
‘The Market’ is made up of people just like you and me. The events of the world impact us psychologically and emotionally, even if we don’t realize it. In election years, these factors are amplified. Because of all the swirling emotions (And several other factors), markets can be very unpredictable in the short term.
Stocks During A Presidential Election Year
People often worry that elections will cause big swings in the market. But historically, the market does pretty well during election years. For example, from 1928 to 2020, the S&P 500 averaged an 11.58% return in election years, a bit better than the usual 9%-10% range.
Most election years (83% since 1928) have ended with the market positive. Which is a higher rate than the usual average of about 74%.
Political Parties and the Market
In election years from 1928 to 2016, the S&P 500 returned an average of 15.3% when a Republican was elected and 7.6% when a Democrat was elected.
In the first year of a 4-year presidential term since 1977, the S&P 500 averaged 20.6% under Democratic Presidents and 12.3% under Republican Presidents.
When looking at the full 4-year terms since 1957, the S&P 500 averaged a compound annual growth rate of 9.8% under Democratic Presidents and 6% under Republican Presidents.
What Should Investors Do?
This simple answer for most of us is to keep doing what we were already doing!
- Keep our emotions out of our decision making (Be mindful of herd behavior and overconfidence. And be careful not to act based on fear or greed)
- Stick to long-term investment plans
- Keep a balanced mix of different types of quality investments
On the lighter side we are having a webinar on August 13th from 9:30 am – 11:00 am that is now open for you to RSVP. The topics to be covered by Jeremy Finger and John Nichol will be a general market overview, a recap of the 2nd quarter earnings season, the Federal Reserve’s upcoming decisions, politics, and any questions you may have.
Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information. My intention is to share principles so that you will have more clarity that help you make better financial decisions.
Investment advice is offered through Stratos Wealth Advisors, LLC, a registered investment advisor. Stratos Wealth Advisors, LLC and Riverbend Wealth Management are separate entities.
The information presented in this newsletter is the opinion of the writer and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources, but no liability is accepted for any inaccuracies. This is for information purposes only and should not be construed as an investment recommendation.
Past performance is not necessarily indicative of future results, and there is no assurance that the investment objective will be achieved or that the strategies employed will be successful. All investments involve risk and, unless otherwise stated, are not guaranteed.
The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
