Elections and Market Outcomes
Elections and Market Outcomes
Well, election season has started with the first presidential debate under our belt. This is the earliest we have ever held a presidential debate, which will extend election season and perhaps amplify our opinions and feelings.
As a politically divided nation with so much at stake, we can expect a lot of noise and mudslinging.
Strong opinions and heated debate can get us emotional.
But when it comes to financial decisions, we need to do all we can to make rational decisions, despite how we may feel.
Market Performance & Election Outcomes
It may be surprising to learn that historically, the stock market has performed well, regardless of which party was in power.
Since 1936, the 10-year annualized return of the S&P 500 Index was 11.2% when a Democrat was in the White House and 10.5% under a Republican president.1
Party-Based Investing
Despite that data, and because we can have passionate political opinions, there may be a strong temptation is to invest (or not) based on which party wins.
Voting with our dollars may feel good, but history shows it can be a costly choice.
Bespoke Investment Group found that beginning in 1953 with a $1,000 investment, if invested only when a Republican was President resulted in an ending value of $27,400. Investing when only a Democrat was President did better, resulting in an ending value of $61,800.
But the best return came from investors who remained invested, irrespective of election outcomes. That investor ended up with $1,690,000.2 That’s over a $1 million decision!
Greatest Financial Risk in Election Season
The greatest financial risk investors face with elections is our individual reaction.
How we respond to the vitriol, uncertainty, and possibility that our desired party is not in power can significantly influence our investment performance.
We may face an internal battle of our strong political feelings with the need to make rational financial decisions.
While investing based on which party is in power may seem wise, history has proven it be a very costly endeavor.
If the election noise gets you concerned, let’s talk it through.
My goal is to ensure your financial decisions are rational and in line with your stated objectives and goals.
Stay invested,
– Kaleb Paddock, CFP®
Learn More
You can learn more about Ten Talents and Kaleb Paddock, a financial advisor based in Parker, Colorado, by clicking here.
Kaleb can be reached at (720) 710-0939 or kaleb@tentalentsfp.com.
You can check out the Ten Talents YouTube channel by clicking here.
- Capital Group, Standard & Poor’s. Each 10-year period begins on Jan 1 of the first year shown and ends on Dec 31 of the tenth year. Figures shown are past results and not predictive of results in future periods. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.
- Bespoke Investment Group, Carson Investment Research, FactSet. Time period 1953-April 2024. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.
© The Behavioral Finance Network.
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