Avoid the temptation to act rashly based upon who wins the presidential election.
By the time you read this, we will have elected a new president. Regardless of who won, you will hear wildly differing views and theories about how the new president — through various economic and tax policies — will impact your investment returns and how you should reposition your retirement portfolio. You will also hear heated debates between Democrats and Republicans about which party’s President has coincided with higher stock market returns.
Let’s take a look at some evidence suggesting that you are better off avoiding the temptation to make any significant changes. The first chart (above – click to enlarge) shows the growth of one dollar invested in the US stock market over nine decades and 15 presidencies (Coolidge to Obama). The second chart (below) shows the returns of the US stock market as represented by the S&P 500 Index from 1928- 2013 during various presidencies. The chart below shows the growth of one dollar invested in the US stock market over nine decades and 15 presidencies (Coolidge to Obama).
What we find is the following:
- There is no obvious difference in long term stock market performance based upon which party holds the presidency.
- Markets have performed well under both political parties. There has been no statistically significant impact on US stock market returns.
- On average market returns have been positive in election years and the subsequent year.
What this means is that the election is one of numerous factors that determine securities prices in any given year — or any given day. The US economy and the global economy find ways to grow despite changes in political parties, tax laws, regulations, and economic policies. If you are truly a long term investor, you should not change your portfolio based on this month’s election.