The Election and the Stock Market

It’s finally election week. So I’ll join my voice with every other financial publication and give my two cents on how to manage your investments during an election year. It seems like every four years the same articles get published and we have the same conversation, so my goal is to make this as short and simple as possible.

Presidential elections are big events and wrought with uncertainty. So it’s no surprise that people wonder what a certain candidate will mean for their money. Although elections can be scary and the stock market is generally more volatile in the months surrounding the election, if you’re a long-term investor history has shown that the results don’t matter.

As is typical heading into an election, there are predictions galore about what will happen to the stock market depending on which candidate wins. This isn’t new. When Trump was elected four years ago, there were many people who predicted an enormous market crash. When Obama was elected people predicted much of the same. There will always be a herd of people ready to predict doom and gloom. What actually happened was the S&P 500 hit nearly 130 new all-time highs during each of their respective tenures.

As you can see from the following graph, no matter who the president is the stock market has gone up.

Every president has also experienced down markets. While politics may have some small influence on the stock market, the truth is it’s far less than most people like to believe. As we’ve seen this year, the economy and the markets aren’t even always correlated. There are numerous factors that contribute to stock market performance many of which are outside the control of any political party or president.

I’ve heard people say that they’re “waiting until after the election” to invest their cash. Sitting on cash waiting for the perfect time to invest rarely ever works. One of two things will happen after the election — stocks will go up or they’ll go down. If they go up, you’ve missed out on the gains and you’ll want to wait for stocks to go down again before investing. If they go down, your fears are confirmed and you still won’t invest because things aren’t looking good. In either scenario, you’re still left waiting to pull the trigger.

Stocks might fall before, during, or after the election but that’s not news because that chance always exists. Stocks go up and down every day, but your focus should be on long-term growth, not daily movements. What you need in order to succeed in investing is time in the market. The best day to invest was yesterday and the second-best time is today.

Don’t let politics interfere with your investment strategy. Your strategy should be built around your life goals and shouldn’t change based on who’s president.

Thanks for reading!