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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* 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.
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