It seems like every 4 years during the U.S. election cycle there is a significant increase in tension and uncertainty surrounding markets and investing. Presidential elections can be divisive and unsettling. At times, the fate of the world seems to hang in the balance, but when it comes to investing do elections really matter that much?
We continue to urge clients to stay the course and keep to their financial plan, highlighting that by maintaining a long-term focus, investors can position themselves for a brighter future regardless of the outcome at the voting booth. In fact, overreacting to short-term volatility during election cycles can be detrimental to investment returns.
In this guide created by the Capital Group, some of the top investor questions about investing in an election year are addressed, drawing insights from analysis of over 90 years of investment data across 23 election cycles. Here are some highlights of what they learned:
U.S. stocks have trended up regardless of whether a Republican or Democrat won the White House. A $1,000 investment in the S&P 500 Index when FDR became president in 1933 would have been worth over $21 million in 2023. During that time there have been seven Republican and eight Democratic presidents.
Primary season tends to be volatile, but markets have bounced back strongly afterward. Stocks have returned 11.3% in the 12 months following primaries, compared to 5.7% in similar periods of non-election years.
Investors often get nervous and move into cash during election years. Net asset flows into money market funds have been more than twice as high in election years as in the year after an election.
Staying on the sidelines has rarely paid off. It’s time, not timing, that matters most. The S&P 500 Index had negative returns in only two of the last 20 election years (2000, 2008), and both declines were largely attributed to asset price bubbles rather than politics.
For more information on election year investing stay tuned to our blog!
Disclaimer: The information provided here is general in nature and is shared for information purposes only; nothing herein should be interpreted as investment or tax advice. Any and all tax laws and/or specific tax rates referenced are subject to change. It should not be assumed that future performance of any specific investment or investment strategy will be profitable. Always consult your CPA/tax advisor/attorney (or reach out to us) to discuss your specific situation. All investments carry the risk of loss, including the permanent loss of principal. Past performance is no guarantee of future results.
