Broker Check

Viewpoint: It’s an Election Year

| April 17, 2024


The 2024 presidential election is November 5th. What emotions do you feel when you think about it? Maybe concern or frustration? Maybe excitement or even fear? It seems America will be in the position of choosing between the incumbent President Biden (Democrat) or former President Trump (Republican). Some people will vote for their favorite candidate while others may feel defeated that they’re forced to choose the lesser of two ideal options. And while Democrats currently have the majority in the Senate, Republican’s maintain control in the House of Representatives. Who will gain or lose power? How will this all play out? Your guess is as good as ours.

Or maybe you’ve wondered, “How will the election results impact the performance of my portfolio?” We are asked this question the most, so we thought we’d cover this topic as our viewpoint this quarter. Clients often tell us they think their preferred candidate will somehow improve their portfolio balance, but you might be surprised. The evidence shows market performance is more closely tied to corporate earnings and the regular ups & downs of business cycles than the presidential party in office. In other words… don’t vote with your portfolio.

For that and many other reasons, Odyssey remains agnostic when it comes to politics. We have our own opinions, of course, but we do our best to help our clients remove their emotions from the investing process. Reacting and making sudden changes based on one’s emotions will often ruin the best laid plans.

Market facts related to Presidential elections (1960-2023):

  • The average election year return was 7.3%
  • The average return of all years was 8.4%
  • The average return under Democratic presidents was higher than under Republican presidents
  • The highest 1-year return of an election year was under a Republican president (1980)
  • Returns were strongest in the year before an election year (13.9%)

[Schwab Center for Financial Research with data provided by Morningstar, Inc. Returns shown are of the S&P 500 Index.]

 

Take a look at the graphic. You may be surprised by what the data actually shows. In this illustration, the growth of $1 invested in a US Large Stock Index had differing results depending on when an investor put the money to work. Many clients might assume Republican full control of both the White House and Congress would provide the greatest outcome, but here are the facts:

  • Republican… $1 grew to $10.23
  • Democrat… $1 grew to $50.05 (nearly 5 times more)
  • All years… $1 grew to $511.95 (more than 50 times more)

So what is our advice? Invest for the long-term. Avoid the noise and uncertainty created by elections (and many other big news events). All the uncertainty can be unnerving for investors, but it would be best to focus on your long-term goals rather than election results.

Some investors will continue to try and time the markets, making sudden changes, but this requires much luck – both when you sell and when you buy. Life is a long-term game. Investors who are prudent and do their best to remove emotional reactions from their investing process are more likely to come out ahead in the long run.

The Cost of Missing the Best Consecutive Days in the Market

Russell 3000 Index total return, 1993-2023

 

 

 Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.

Yes, it is an election year, but the impact it will have on your portfolio is not a certainty no matter the outcome. If you have questions about the plans we’ve developed to help you attain your financial goals, please contact your Odyssey advisor.