As we head into another presidential election cycle, investors are expressing concern about how the outcome will impact their portfolios and the economy. Investors love to point to catastrophic market events of the past and blame politicians. Using previous drawdowns under one administration or another as a springboard to justify making changes to their portfolios. They’ll make accusations about the cause of a specific market sell-off, and what political policies may have caused it. Everyone seems to think that if their candidate doesn’t win, the stock market will crash and burn, but is there really any truth to that assumption?
The short answer is no. The president generally has very little impact on stock market performance, despite getting a lot of the credit and blame for it. The chart below from Dimensional shows the growth of $1 from 1926-2022 across various Presidential terms.
Looking at this chart, you can see that liquidating your portfolio based on which party holds the Presidency wouldn’t have had a positive impact on your returns. In fact, this timing strategy would’ve led to horrible results vs. just holding on regardless of the administration in charge.
Starting in 1953, $1,000 invested in the S&P 500 only under Republican administrations would have grown to $27,400. While if you only invested under Democratic administrations $1,000 would have grown to $52,100. Democrats holding the presidency for longer periods since 1953 titled this figure in their favor, but average annual returns weren’t materially different. However, both these amounts are dwarfed by the $1,430,000 you would have earned if you held the S&P 500 despite which party held the white house. The difference is staggering.
The moral of the story is, don’t let your political beliefs impact your investing strategy. Your portfolio should be a reflection of your risk tolerance, risk capacity, and time horizon, not your political ideology. The notion that the stock market can’t perform well, or even more extreme, would crash under one party or another, is not borne out in the data.
Disclaimer: The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results.
The hypothetical example above is not representative of any specific situation. Your results will vary. S&P 500 is an unmanaged index which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
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