The Election and Your Portfolio Performance September 30, 2020
The Election and Your Portfolio Performance
Are you concerned about how the outcome of the November 3 presidential election could have an impact on the markets? You are not alone. The presidential election is one of the top trending items on social media and is one of the top stories of the day. This brings me to the two questions we will address today. How will the upcoming election affect my portfolio, and should I do something to protect myself? The goal of our video today is to provide a long-term perspective on how the party of the president can influence the market and what you should do to protect yourself.
Since 1860 there have been 94 years under Republican and 65 years under Democratic presidents. The annualized return of 60% stock and 40% bond portfolio during that time frame was 8.2% under Republican and 8.4% under Democratic presidents. When looking at this from a long-term perspective there hasn’t been a significant return difference in the market solely based on what party the president is.
Here you can see the annualized returns under Republican and Democratic presidents going back to Nixon in the late 60’s. Once again, under both parties the market has shown positive long-term returns. When looking at just the president and the data one cannot definitively identify what the market will do based on the party of the president.
A logical next question would be, “Why is that?” The reason is there are so many variables that determine market returns. Many of those variables are outside of the president’s control.
Let me provide you with an example. Think about your favorite football team. If that team wins, who is often interviewed at the end of the game? The QB is often times receives public credit for the win because they are very frequently the face of the franchise and the most well-known player. However, the QB is not the only person on the field. When the QB throws the ball who catches it? A wide receiver. Does the QB play defense and offense? No. Just like a QB on a football team the president is in a role where they are a public figure and can have an influence on the market, but they are not the only thing that influences the market.
A person’s political view, Democrat or Republican, is a very personal decision. Due to the personal nature of politics, when political discussions pick up around election times it often creates heavy emotions. Making investment decisions on emotion often times results in lower returns and missed opportunities. The best approach to investing is creating a diversified investment strategy that fits your goals and time horizon.
I will finish with this chart. If you want to be a long-term investor and maximize your returns over the long run, you can see that the returns of your investments aren’t solely decided by what political party is in power. That it is best to stay in the market, regardless of which party has the presidency.
If you are not sure if your portfolio is aligned with your personal goals, contact me with the information provided below. I’d be happy to meet with you and review your unique situation.