Elections and Your Portfolio: Separating Fact from Fiction

You shouldn't stress about how elections will impact the markets. Misconceptions arise every four years about presidential contests and your portfolio, causing unnecessary worry. As your financial advisor, my job is to help you feel confident, not anxious.

Misconception 1: Presidential elections lead to down years in the markets. This belief stems from the controversies and uncertainties we remember from past elections. However, statistics debunk this myth. Since 1944, the S&P 500 has had positive returns in 16 out of 20 election years, with a median return of 10.7%.[1] Although two negative returns occurred in 2000 and 2008, both were during significant recessions. While volatility can increase leading up to elections, the median return from January to October in election years is still 5.6%.[1] After elections, as uncertainty clears, volatility subsides. This suggests that while elections do introduce some uncertainty, they are far from the most critical factor influencing the markets. Economic fundamentals play a much larger role.

Misconception 2: If one candidate wins, the markets will plummet. This narrative is driven by partisanship, but markets have thrived under both Republican and Democratic presidents. Since 1944, the median S&P 500 return in the year after an election is 9.8%, rising to over 24% since 1984.[1] The economy, driven by factors like trade, supply and demand, innovation, and consumer confidence, influences the markets more than elections do. The president's influence is just one of many factors that affect market performance. Inflation, interest rates set by the Federal Reserve, and global economic conditions are often more significant influences on market behavior.

Misconception 3: We have no control over this and thus no control over our portfolios. While we can't dictate election outcomes or market reactions, we can control our actions. Long-term investment success involves filtering out the noise and focusing on what matters. Political campaigns and media create noise to provoke emotions like fear and anxiety, leading to short-term, emotionally driven financial decisions. Emotions promote the urge to act impulsively—buy, sell, take on more risk, or reduce risk—all in response to short-term concerns.

Our investment strategy focuses on the long-term, designed to help you achieve your goals beyond the four-year presidential term. Just as life is shaped by millions of small decisions rather than one big one, the markets are influenced by numerous factors over time. This perspective helps us avoid making hasty decisions based on temporary uncertainties.

As the election approaches, remember to tune out the noise and avoid these misconceptions. Jackie and I are here to answer your questions and assist you in any way we can. Your financial future is built on a long-term strategy, not short-term political event

[1] “Election year market patterns,” ETRADE