Presidential Elections and the Stock Market

Our country will elect a new President next Tuesday and, as expected, financial pundits are busy making promises of how election results will impact market returns. News headlines such as “What investors can expect if Clinton wins” and “The stock market could crash if Trump is elected” dominate major media outlets.

While such articles cater to our natural urge to understand the election’s impact on portfolios, the truth is no one knows exactly how next Tuesday’s outcome will affect markets.

Fortunately, long-term investors shouldn’t be too worried in the face of this added uncertainty. The graph below shows that over nine decades and fifteen different Presidents, markets have overwhelmingly rewarded diversified and patient investors.

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There is no obvious pattern linking market performance to the White House occupant. In fact, Vanguard data back to 1853 finds that stock market returns have averaged 11% per year under both Democratic and Republican Presidents.

That market returns have been similar over history underscores the fact the party in power is just one of many factors impacting stock returns: valuations, global trade, technological advances, interest rates, changing demographics, natural disasters, etc.

So, what post-election impact might we expect? Volatility, at least in the short term. Leading up to an election, markets have historically been more turbulent than normal. We’ve witnessed this again the past few months. Once the results are in, however, it is likely volatility will recede to more normal levels as it has after past elections.

The best way to deal with market turbulence is, quite simply, to fasten our seatbelts. Remember, volatility works two ways—both positive and negative spikes in performance contribute to measures of volatility.

By focusing on what we can actually control—driving down costs, minimizing taxes, and adhering to our personal asset mix—we are sure to earn the attractive long-term returns markets are likely to provide.

And that’s a promise which can be fulfilled regardless of who wins the election.

 

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