It happens frequently – clients become fearful about staying invested during election years, especially if they think their candidate won’t win.
It’s true uncertainty can cause short-term volatility. An extreme example was 2016 when Hillary Clinton was expected to win. When Trump unexpectedly won, stock futures initially dropped because it was such a surprise. However, stocks reversed course shortly after and began rallying once the meaning of the wrong projections was digested.
Long-Term Returns Positive Regardless of Winner
History shows the stock market performs well overall in election years in the longer term.
This LPL Research chart shows S&P 500 returns averaged:
- 17.2% in Year 3
- 6.9% in Year 4
- Positive 78.9% of the time in Year 4
Higher Returns When Incumbent President Runs Again
Now let’s focus on Year 4. When the incumbent president runs again, like Biden in 2024, returns have averaged 12.5% and been positive 100% of the time.
That’s much higher than when the president doesn’t run again – only 1.7% average returns and positive 60% of the time.
This is regardless of which party the incumbent is part of. Returns are more related to the economic cycle than politics.
Key Takeaway: Don’t Let Politics Shake Your Investment Plan
The data is clear – long-term investment returns relate more to economic cycles. Don’t let your politics or election predictions disrupt your financial plan. Stay invested based on your goals rather than who you think will win.
Past performance isn’t indicative of future results. All information contained in this blog is for general information only and shouldn’t be considered investment advice.
