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Investing during an election year can stir anxiety for some people, prompting them to reconsider their financial strategies. However, historical data suggests that maintaining a long-term approach to investing is the most effective course of action, regardless of which political party is in power in the United States.
Over the years, the performance of the stock market has been remarkably consistent, regardless of the party occupying the White House. A common misconception is that the market performs better or worse depending on the political leadership, but long-term data suggests otherwise. For example, if you had invested $1,000 in the stock market in 1926, by 2023 that investment would have grown to $14.5 million.[1] This growth spanned multiple shifts in political leadership, demonstrating the resilience of the market over time. Whether the United States president was a Democrat or a Republican, those who stayed the course and remained invested experienced significant growth in their portfolio.
Despite election year anxiety, examining the actual numbers a more encouraging story is observed. Historical data reveals that election years tend to perform slightly better than non-election years in terms of market returns. From 1926 to 2023, the S&P 500 returned an average of 10.3% annually, while during presidential election years, the average return was 11.6%. In contrast, midterm election years saw a slight decrease to 7.4%, though non-election years posted the highest average return at 14.8%. [2] The overall takeaway is that the market tends to reward long-term investors, even during periods of political uncertainty and turmoil.
It’s important not to let emotions, particularly optimism or pessimism about the political climate, influence your investment decisions. A Gallup satisfaction survey from the past few decades highlights a surprising trend. When fewer than 33% of Americans expressed satisfaction with the country’s direction, the stock market performed better, with an average return of 11.3%. Conversely, when more than 33% of Americans were satisfied, the market returned only 9.7%.[3] This suggests that market performance does not align with public sentiment. Even in times of low confidence in the country’s trajectory, the stock market can continue to thrive. A striking example of this occurred during the 2008 financial crisis, a period followed by one of the longest bull markets in U.S. history. Many investors acted out of fear and missed the opportunity to benefit from this extended market growth by pulling their money out of the market at a low point.
Consistency in investing is crucial, particularly during periods of uncertainty. Election years often exhibit an increase in money market holdings, as investors shift into cash out of caution. However, history shows that staying invested in the equity market is the best strategy for most investors. Over the past 30 years, stock market returns have consistently outperformed money markets and cash equivalents, especially during election years.
While it’s natural for some investors to feel uneasy during an election year, history supports that it’s essential to remain committed to your investment strategy and continue to stay the course toward long term goals. The stock market has shown time and time again that it has the potential to weather political shifts. By staying invested and not letting emotions guide your decisions, you are more likely to achieve long-term financial success.
[1] Source: Morningstar as of 12/31/23. Stock market represented by the S&P 500 Index from 1/1/70 to 9/30/23 and IA SBBI U.S. large cap stocks index from 1/1/26 to 1/1/70.
[2] Source: Morningstar as of 12/31/23. Stock market represented by the S&P 500 Index from 1/1/70 to 12/31/23 and IA SBBI U.S. large cap stocks index from 1/1/26 to 1/1/70. P
[3] Source: Morningstar and Gallup as of 12/31/23. Stock market represented by the S&P 500 Index. Note: Gallup “satisfaction level” polling data was recorded every month after April 2000. Prior to April 2000, Gallup “satisfaction level” polling data was recorded on an ad hoc basis
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Securities and advisory services offered through EWA LLC dba Equilibrium Wealth Advisors (a SEC Registered Investment Advisor).
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
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* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
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