How Will the Presidential Election Impact the Stock Market?

Our topic on this episode of the Ready for Retirement podcast is the myth that investments are negatively impacted during election years. Many people shift their portfolios to less risky investments or pull out their funds entirely during election years because of this belief, but is it true?

While there may be some residual effects of elections, particularly presidential elections, on the stock market and other investments, the data shows that these effects are not substantial enough for investors to need to take drastic steps.

Every year has volatility and variance, but the long-term returns are optimized by staying the course regardless of the political party that is in power. In fact, the stock market seems to do best when there is some level of political gridlock in Washington.

If you want to ensure that your investments are going to provide you with adequate returns for your retirement goals, your best bet is to diversify your portfolio and include international investments as well as the typical US-based stocks, bonds, real estate, and business investments.

Have an overall investment strategy, perhaps with the assistance of a financial planner, and don’t make your decisions out of the fear of what could happen if a certain person or party gets elected.

Key Points:

1. What do election years mean for your portfolio?
   • According to the data, not much
     • S&P average returns are 12% overall and 11.3% in election years
     • The variance in monthly returns is not much different either
   • Red car syndrome
     • Confirmation bias will lead you to see what you want to believe
     • There is never a year without volatility
     • Being in cash is not a winning strategy long-term
   • Is there a difference in the market with different parties are in power?
     • Even though the different political parties have different economic philosophies, this does not have a drastic impact on investments
     • When weren’t things ugly politically?
     • Don’t use politics as a rationale for sitting out
   • You may not like who gets elected
     • You are not investing in that person; you are investing in companies with growth potential
     • Your investment strategy should be the same regardless of politics
   • What should you do?
     • Diversify your portfolio
       • Consider what you are investing for and your risk tolerance
       • Having all US investments may subject your portfolio to unnecessarily high political and economic risk
       • Real estate investments, bonds, businesses, international, stocks

Timestamps:

0:11 – What does this presidential election year mean for my portfolio?

0:47 – A look at the data

2:35 – Red car syndrome

3:59 – Is there a difference in the market when different parties are in power?

9:45 – You may not like who gets elected

11:06 – What should you do?

14:17 – Summary