As we approach Election Day, it is natural to feel a bit apprehensive about market volatility.
It is easy to get sucked into the headlines, social media, and 24-hour news channels that seem to create more questions than answers about what lies ahead.
Despite all the noise, it is important to remember that we have had presidential elections before, and will have them again. Here are three big questions (and answers) about what to expect after Nov. 5.
Question 1: Does the winning political party significantly impact long-term investment returns?
The short answer: Not as much as you might think.
Historical data indicates elections, regardless of outcome, have minimal impact on long-term investment returns. According to a study by Fidelity, the S&P 500 has historically averaged positive returns under nearly every partisan combination from 1933 to 2022, with nearly identical margins for most combinations. 1
Takeaway: As we can see in the chart below by JP Morgan, markets have historically trended upward over the long term, regardless of which party holds the White House.
Question 2: How do markets typically perform in election years?
Election years often bring short-term volatility, which tends to be temporary:
- Data from S&P Global shows that since 1928, the S&P 500 has had an average 11% return in election years.2
- A study by Charles Schwab found that market volatility tends to increase in the months leading up to an election but usually subsides afterward.3
- Historically, markets have shown resilience: Since 1928, the S&P 500 has been positive 83% of the time during election years, according to a study by Morgan Stanley.4
Takeaway: While we may see some short-term fluctuations, markets have generally performed well during and after the election. Let’s take a look at this chart from JP Morgan.
Question 3: Should we adjust my portfolio in the wake of the election?
It is always important to stick to your long-term plan. But let’s look at the data:
- A study by Fidelity found that investors who stayed fully invested in the S&P 500 from 1988 to 2023 avoided a 37% reduction in portfolio earnings compared to those who missed the best five market days during that period.5
- Research from JPMorgan Asset Management showed that seven of the ten best days in the market over the past 20 years occurred within about two weeks of the ten worst days, highlighting the importance of staying invested.6
Takeaway: If we look at the chart below from Fidelity, we’ll see it is always about time in the market rather than timing the market. Trying to time the market often leads to missed opportunities. Your diversified, long-term investment strategy is designed to weather short-term volatility.
The Big Picture
Remember, you’re not investing in political parties or presidencies. You’re investing in a diversified portfolio of quality companies and assets designed to grow over time. Historical data consistently shows that markets have been resilient to political shifts over the long term.
We’re here to help you navigate any concerns or questions you may have. Our focus remains on your long-term financial goals, not short-term distractions.
If you have questions about the election, the economy, or what it means for you and your financial plan, feel free to reply to this email so we can continue the conversation.
1https://www.fidelity.com/learning-center/trading-investing/election-market-impact
3https://www.schwab.com/learn/story/traders-view-on-options-volatility-elections
4https://www.bankrate.com/investing/election-year-stock-performance/
5https://www.fidelity.com/learning-center/wealth-management-insights/3-reasons-to-stay-invested