The Great Debate – Election Years vs. the Stock Market
Whether your political views are right, left, or somewhere in between, you should check out this video. Election years tend to heighten everyone’s anxiety. This video does a great job of helping us as investors understand what to do.
As changes to tax reform, foreign policy, and social issues loom, it’s totally natural to be tempted to make short-term portfolio changes to profit from the uncertainty, or to minimize losses. But, as we know, markets are extremely efficient at processing new information and adjusting prices based on future expectations, so research would tell us any fears or expectations about the results of the presidential election are already baked in.
So, what’s a savvy investor to do? Our friends at Dimensional Funds skillfully reframe the perspective provided by the regular media.
Going back to 1928, when Herbert Hoover was elected president over Al Smith, the S&P 500 has returned on average 11.3% during election years and 9.9% in the subsequent year. In fact, there have been only three presidents in history that have seen negative returns in the stock market over their presidential tenure: Herbert Hoover during the Wall Street Crash of 1929, Franklin Roosevelt during the Great Depression, and George W. Bush in the 2000s during a time known as the Lost Decade.
Our takeaway? Make sure your investment plan fits your goals and stick with it. No matter what the regular media is saying, the data shows whoever is in the White House is unlikely to negatively impact the long-term value of your nest egg.