This year’s election season will be remembered for being one of the most divisive campaigns witnessed in many voters’ lifetimes. Regardless of where you fall on the political spectrum, it’s natural to wonder how the results of the election will change your financial life and, more specifically, how will it alter your investment results.
How Will Markets React To The Results Of The Election?
The available data regarding market movements around election time is not in the ballpark of what I’d consider to be statistically significant. Having said that, the limited data we do have indicates that no matter which party wins, there is usually a corresponding rise in the markets. Historically, when a Republican is elected president, markets tend to do well during the year of the election, and when a Democrat is elected, markets do well during the year of the inauguration.
The majority of this rise can likely be attributed to the certainty that arrives after the election. Once a new regime is finally decided upon—regardless of which party ultimately wins—and is ushered into office, the fears investors have usually abate. It’s certainly easy to get lost in the rhetoric on both sides, and it’s not surprising that people sometimes make investment decisions based on the results of an election. A 2015 study conducted by Oppenheimer and Bloomberg found that when a Republican president is in the Oval Office, Republican investors tend to have a higher percentage of their assets in stocks. Similarly, when a Democrat is in office, Democratic investors tend to have a higher percentage of their assets in stocks. Sadly, both parties miss out by not being more fully invested in the stock market.
I think it’s important for all investors to take a step back, ignore the fray and analyze the facts. The U.S. is a great place to live. Thanks to our higher education system, the incredible ingenuity displayed by our information technology and health care industries and our ability to communicate around the globe instantaneously, children born today will almost certainly enjoy a higher quality of life than those born 50 or 100 years ago. And that’s without mentioning that we continue to have one of the best economies in the world.
Remember Why You’re Invested in Stocks
While many people long for simpler times, when the good life could be achieved on a single income, employment was often a lifelong contract and pensions were plentiful, we too often overlook the positives we have today. The quality of life enjoyed by the wealthiest people in the world a mere 50 or 100 years ago is now common for most Americans. The true luxuries of the elite roughly a century ago were electricity, refrigeration, indoor plumbing, hot water and automotive travel. Even the wealthy of 50 to 60 years ago were spending their money to enjoy access to amenities that are readily available today, such as home air conditioning, color TVs and air travel.
We’re continuing to benefit tremendously from women’s increased presence in the workforce over the last several decades, thereby making the professional landscape more diverse, talented and competitive overall. This is undoubtedly one of the major reasons our productivity and our standard of living have significantly increased.
Thomas Jefferson once said, ‘I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend.’ As an investor, I’ve never considered any of those items as reason to withdraw from owning stocks, and the data says neither should you, no matter who you’re casting a vote for on November 8.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk, including loss of principal.