Articles and Resources
Welcome back to Cornerstone Conversations, where we provide insights into major discussion topics that we’re having with our clients and amongst our team. With the presidential election just one month away, we’re seeing a lot of concerns about its impact on the market. There’s a tremendous amount of speculation driven by emotion rather than logic. That’s why we feel it’s essential to have a nonpolitical, data-driven conversation about investing during election times.
Myths and Misconceptions:
As we get closer and closer to November, we have continued to hear more misconceptions about the impact of elections and politics on market performance. Here’s 3 of the more common that we hear with some details regarding the conversations we’re having on them.
Myth number 1: The political party in control of the White House has a major impact on market performance. Let’s debunk this myth with some hard facts. Markets have shown an upward trend regardless of whether a Republican or Democrat is in office. Since FDR took office in 1933, we’ve had eight Democratic and seven Republican presidents. The data shows that in the calendar year following elections, the S&P 500 earned an average of 11.5% with a unified government and 15.9% with a divided government. Conversely, with a Republican win, the S&P 500 averaged 16.1% with a unified government and 9.4% with a divided government. So, any notion that “if XYZ candidate wins, the market will crash” is simply not supported by historical data. 1
Myth number 2: Election years create chaos and volatility in the markets. While election years often come with a certain level of uncertainty, they have historically delivered positive returns. The average annual return on the S&P 500 during presidential election years is 9.9%. Volatility tends to be higher during the primaries, as the market assesses multiple candidates and their potential policies. However, this year we’ve known our two main candidates from the start, providing a clearer picture of what each might bring to the table.
Myth number 3: This level of political chaos is unprecedented. This one is incredibly easy for us to get caught up on because we’re currently watching the election play out in front of us. But the reality is that this is simply recency bias, which is the tendency for us to overweight more recent experiences rather than prior ones. Every election cycle has had its own set of challenges, including civil unrest, geopolitical crisis and war, recessions, and even assassinations. The chaos we’re experiencing in 2024 is not unique and has been a feature of many past elections.
Short Term Volatility does not mean Long Term Disruption:
Every day, various factors can trigger market volatility. When new information emerges, markets adjust and re-price accordingly. It’s crucial to remember that short-term volatility is a normal part of investing. From 2000 through 2023, the S&P 500 experienced a correction of 10% or more in 14 of those 24 years. Yet, the total return of the S&P 500 during that period was a 224.64%. This illustrates the resilience of long-term investing despite short-term market movements.2
Your Plan is Bigger Than This Election:
Presidential terms last just four years, but your financial plan is designed to last a lifetime. On average, the financial plans we build for our clients are 20 years or greater in length. And the focus of financial planning is you and your family, not the person that happens to be residing in the white house. Our team has managed money through 7 different administrations and 5 changes of political party. History shows that staying invested in the market is far more beneficial than trying to time it based on election outcomes.
Investing during election times can feel daunting, but with a clear focus on data and long-term goals, we can navigate this together. Remember, your financial plan is built to weather all kinds of storms, including political ones. Stay the course, and don’t hesitate to call us if you need additional expertise and support.
1: Source – Janus Henderson Investors. Data from 1937-2022
2: Source – Koyfin, S&P 500 Index Total Return Graph from January 1, 2000 – December 31, 2023
