“How are you feeling about the markets with this being an election year?”
This is a question I get on a weekly basis right now. So to help answer this, let’s look back and understand how different political parties impact the markets:
Most people I talk to assume:
But is this actually true?
Before we even get into that, I think we need to talk about something else. If this is something you are thinking about, you need to reevaluate how you are looking at the markets.
You should be saving for the short term and investing for the long term.
Why is this so important?
Because no matter what there is going to be volatility in the markets. That is just how investing works and why you anticipate solid returns over the long term. If there was no risk and no volatility, you would not expect great returns.
So if you are worried about this, ensure you are saving for the short term and investing for the long term. Anyways… let’s look at the data.
Historically, there has been more volatility in times leading up to the election.
Why?
We have no idea what is going to happen and the markets HATE uncertainty, just like we all do.
If we go back to 2016, the futures markets dropped 5% when it started to look like Trump was going to win. 5%! But then by the time the market closed the next day, it was up over 1%.
In election years, the total return in the market was 8.9% compared to 8% in non election years. I do not think I would wait on the sidelines with long term money based on uncertainty.
So going back to the thought that the markets do better when Republicans are in office. Is this actually true?
Here’s a chart from 2020 that walks through this.
With a 60/40 portfolio the average return was .2% higher when a democratic president was in charge. Not much of a meaningful difference at all.
At the end of the day, there is going to be plenty of volatility and down turns in the market over your lifetime. It’s all part of the game. We simply have no idea what changes are coming or what way the markets are moving. We are long term investors and stick to the plan. Avoid the noise.
Financial Advisor