With less than a week before the presidential election, the topic is top of mind for many. Between the spam calls, texts, commercials, yard signs, mailers, and constant media coverage, politics feel inescapable. We have written about the election several times in recent months, but feel the message is important enough to cover one last time as voters prepare to cast their ballots.

People on both sides of the aisle worry about what might happen to their portfolio if the opposing candidate were to win. There is substantial noise in the airwaves that reinforces this fear. Each election we get asked whether it is wise to liquidate one’s portfolio to mitigate the risk of the other party winning. The fact that this pattern repeats itself each election cycle would suggest that perhaps this behavior has been rewarded historically. The data strongly suggests otherwise. When it comes to investing, emotions like fear often lead to poor choices and can be detrimental to portfolio performance.

The chart below illustrates the market performance during the various presidential terms going back to the 1920s. As you can see, there is no apparent relationship between who controls the White House and how the market has performed. Each party has seen negative returns, low returns, and high returns. Over the long term, the market has powered forward regardless of which party was in power. Clearly, there is something else driving growth.

The Market and U.S. Presidential Elections

Source: Dimensional Fund Advisors. In USD. Growth of wealth shows the growth of a hypothetical investment of $1 in the securities in the S&P 500 Index. Data presented in the growth of wealth chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global.

While the President has the power to impact the financial markets and the real economy, it is just one of many variables exerting influence. Market valuations, productivity improvements, technological advancements, global trade, interest rates, inflation, the business cycle, war, and economic conditions outside the U.S. (among countless others) can all significantly influence the trajectory of economic growth and asset prices. Ultimately, entrepreneurship and innovation are the engines that power the U.S. market forward, not the individual occupying the Oval Office.

We are not trying to suggest there won’t be any volatility. The market hates uncertainty, and we have seen signs of heartburn in the past during periods of change. When you zoom out, however, these periods appear as minor blips on the long and steady climb toward prosperity.

The best course of action is for investors to separate their politics from their portfolio and focus on their long-term plan. Don’t bet on the politicians to achieve your financial goals. Bet on the millions of small business owners and corporate leaders (including many of our readers) to adapt to any environment and continue to grow. Your portfolio is invested in them, not a political party.

Source: MarketWatch

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