The 2020 U.S. presidential election is set to be highly scrutinized, hotly contested, and as polarizing as ever. With November 3rd drawing closer; we are starting to see much more media coverage around the election and its potential implications to the markets and your investments.
We know that by sharing this blog post addressing politics, policy, and investing, it may seem like Sterling Retirement leans towards a specific side of the aisle. However, please note that Sterling, and this post, is not commenting on, supporting, or endorsing any one political party or candidate.
With that out of the way, we would like to address the elephant in the room – how does an election year affect my investments?
The short and sweet answer is as the temperature gets turned up on our political environment, you should separate how you feel about politics from how you feel about investing. Historically speaking, we have seen slightly lower returns and higher volatility in the markets during election years, however, year over year returns during those same years have typically been solid. Here are a few key points to consider:
- It’s important to remember that the key race in the 2020 election is unquestionably the Presidential election, however, the Congressional elections are also very important as they will determine how easily (or not) the next president can implement their policies. We’ve included an easy to read chart below that highlights how key policies may be affected depending on which way the Presidential and Congressional elections pan out. Remember, it’s policies, not politics that matter most.
- Why is it important to keep your emotions about investments separate from your emotions about politics? During the 8 years under the Obama administration, the S&P 500 experienced ~16% annualized returns. During the first 3 calendar years under the Trump administration, the S&P 500 experienced ~15% annualized returns. Over the past decade, domestic equity returns have been very strong (regardless of who was in office) and if you made the decision to pull your assets out of the market due to an emotional political reaction – you may have missed significant upside opportunities. Successfully investing for your long-term goals relies on time rather than timing.
- The debate around what markets and the Economy favor, Republican or Democrat, is an age-old argument. Over long periods of time, the numbers show that the US stock markets tend to favor Republicans in office while Democratic leadership tends to yield stronger domestic economic growth. However, what often occurs after an election is a divided government (where the President, House, and Senate are not all a majority of the same party) – yet we have continually experienced markets moving higher, yielding positive returns, with an economy that continues to chug along and grow regardless of if Washington is red, blue, or both.
So, what’s the takeaway? As we get closer to Election Day the continued news and media coverage will undoubtedly create concerns and uneasiness for many investors. At Sterling Retirement Resources, our goal is to help you tune out the noise and continue to maintain a well-diversified allocation. Remember, your investment time horizons and retirement goals extend FAR beyond any single election year or presidential term — stick to the plan; we will handle the rest.
A diversified portfolio does not assure a profit or protect against loss in a declining market