All of us have had the experience of waking up the day after an election that we were really passionate about with a disappointment in the election outcome that makes us almost want to stay in bed. We don’t agree with the policies of the person who won and are worried about the impact those policies might have on the country and our own financial world.
This can affect the way we view the economy and how we think our money will do in light of the election result. The risk for the long-term investor is to overreact to their disappointment and make buy/sell decisions they may later regret.
It’s natural to worry about your investments and commitment to your strategy, but we want to give you some perspective on how, although the market may swing based on events, historically the market has experienced growth over the long term.
To illustrate this,let’s look at this excerpt of an article by Tarkenton Financial, reflecting onthe elections of both President Trump and President Obama, and how the markets ended up responding to those elections.
What has historically occurred after a Presidential Election?
If you were to do a Google search on the predictions that were being made in the week leading up to the last presidential election on November 8, 2016, you will find article after article predicting that in the unlikely event that Donald Trump would win, the markets would fall like a stone in water, with a recession and hard times sure to follow.
The night of the election when Trump ended up being declared the winner, the futures markets indicated stocks were indeed going to drop sharply with the opening bell, with fears of much worse to come.
In reality, the markets ended up to the positive the day after the election and then went on to have an average rate of return of around 14% in the three years that followed.
Going back another eight years, there were voters who were disappointed when Barack Obama won the election in 2008, worried perhaps that his economic policies would be harmful to the economy and their portfolios.
Well, if they had jumped out of the market after election night in 2008, they would have missed out on a dramatically growing market that saw the S&P 500 jump 23.45% in 2009 and 12.78% in 2010.
This is not a judgement one way or another on whether the policies of President Trump or President Obama may or may not have contributed to that market growth. The point is that if, because of emotion and fear, an investor would have jumped out of the market based on the election result, they would have missed out on some very solid years of growth.
SP 500 Stock Market Performance by President
Stock market returns by president. (Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Source: S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.)
Source: DIMENSIONAL FUND ADVISORS
The chart shows how historically the markets have performed during the terms of our presidents since 1926. The obvious take away from the chart is that although there is short term volatility, the long-term upward trajectory of the markets can be clearly seen in the administrations of both parties. And long-term trajectories can only be enjoyed by investors that stay disciplined for the long-term.
For a full version of this article and more thoughts on elections and the stock market, download the full version here:
Presidential Elections and The Stock Market
Keep Long-Term Goals in Mind
We are investors rather than speculators. We are not seeking to time the markets, but rather to own quality investments that will stand the test of time.
Though pullbacks and sustained periods of volatility are stressful, they are a normal and natural part of market cycles. As financial professionals, our job is to sort through the barrage of information and look at the fundamental factors underneath. Your job is to stay calm and focused on your goals knowing that there are serious professionals who can help you navigate the details.
A good place to start is having investments diversified and knowing that if you are going to be in the market for the next 10 years or more. If you find yourself closer to retirement, we’d be honored to help you take a look at your finances for free and walk you through some options.
Key Take Away
Historically, election outcomes have had very little impact on long-term investments.
Elections are by their nature disruptive events that capture our attention, but they need not disrupt our long-term financial goals because of our overreaction to them.
Elections do matter. It is our privilege and our duty to participate at the ballot box. So, let’s all get out and vote on November 3rd, but keep our eyes firmly on our long-term financial goals.
At Medallion Financial Group, we believe financial planning is about Family. We have been helping families invest in the future since 1987 through a holistic planning approach. We recognize there are a variety of needs when it comes to retirement planning, plan rollovers, annuities, college planning, life insurance options, and investment management. It is easy to get lost in a sea of choices. Our financial advisors help with the basics and beyond to enable our clients to get the education, advice and management they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.