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Politics, the Media, and the Markets - Part 4

Politics, the Media, and the Markets - Part 4

| September 27, 2023

Well, we’ve made it to the last installment of this month's blogs on politics, the media, and the markets, and this week, I want to leave you with a simple message. OK, maybe two messages. The first is this: history shows us that no matter what happens in the world, the markets will eventually go up, and typically, the periods of increase outlast the periods of decrease. And secondly, moving to cash to wait out election volatility, or anything else for that matter, will cost you in the long term. Now, let’s dig into those two points a little deeper.

Simple Fact 1: Markets have trended higher regardless of which party wins the election

We’ve discussed this a bit earlier this month, but I’ll say it again: politics and elections are great at creating strong emotions and even stronger biases. However, those two things have no place in an investor’s mindset because history shows us that elections have made no difference in returns for long-term investors. Know what else doesn’t make a difference? Which party is in power. As I’ve stated earlier, over the last 85 years, we’ve seen an equal number of Democrats and Republicans in the White House, and the general direction of the market has always been up. That’s why staying in the market for the long-term is what should be on investors' minds at all times, no matter what is happening in the world or which party is gracing the presence of the Oval Office. It simply doesn’t matter - if still don’t believe me, take a look at the chart below.

Simple Fact 2: Moving to cash in election years can reduce long-term portfolio returns

I mentioned this in our second blog this month, but I purposely left out the chart that shows the study results because I wanted to plant the seed in your mind and water it for a moment, allowing you to draw your own conclusions before completing the circle. So, here is my final question to you this month: What has been the best way to invest in the markets in election years? Well, it surely isn’t by sitting on the sidelines. 

Let me refresh your memory on the study I mentioned above. It was the one done by Capital Group that analyzed three typical investor approaches and calculated the ending value of their portfolios over the last 22 election cycles, assuming a four-year investment period. Take a look at the chart now, and tell me which investor you’d like to be. I guarantee you it won’t be the one that endured the worst outcomes in 16 of the 22 election cycles. 

At the risk of sounding like a broken record, I’ll leave you with this. Sticking with a date and dollar-specific long-term investment plan based on your specific goals and desired outcomes is usually the best course of action. The bottom line is this: being invested, no matter how you do it - all at once or consistently over time - is always the best course of action. Attempting to time the market, especially around politics, is always a losing battle; it equates to locking in losses and missing opportunities to ride the return to positive market territory. And, like I always say, the key is to tune out short-term noise and focus on long-term goals.

Until next time…

One last thought: I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.


Source: How elections move markets in 5 charts | Capital Group 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. 

All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Dollar-cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.