It’s spooky time! And I’m not talking about Halloween…
Every four years, our country gets excited, anxious, nervous, or downright terrified about the elections. Who will win? Who will lose? Will taxes go up? Will inflation come down? What will happen to my investments??
While I don’t have answers to any of these questions, history does provide insight into the last one.
The short answer – elections do not impact investments over the long term.
Here are a few reasons why.
Policy Stability
No matter who wins an election, many policies tend to stay the same. Economic policies take time to change and are influenced by a combination of Congress, the President, and the Judiciary.
New administrations usually tweak existing policies rather than completely overhaul them, which helps keep the markets stable.
A good example of this is the chart I saw from Fidelity. As you can see, the numbers are largely the same no matter which party wins.
It is interesting to see that the market likes divided congress!
Long-Term vs. Short Term
Markets are primarily driven by long-term economic factors rather than short-term political events. While elections can cause temporary ups and downs, factors like company profits, economic health, and technological advancements have a bigger impact on the markets. Overall, the markets have mostly gone up over the years, showing that long-term growth isn’t significantly affected by any single election.
Unfortunately, in the short term, elections do impact the markets. Fortunately, these effects are usually short-lived.
2016 Election: Donald Trump vs. Hillary Clinton
The immediate reaction to Trump’s victory was a sharp drop in the markets. However, in the months following the election, the market continued its upward trend, driven by broader economic policies, including tax reform and deregulation, rather than the election itself.
2020 Election: Joe Biden vs. Donald Trump
Despite significant pre-election volatility fueled by the pandemic, the market quickly adjusted post-election. It rallied as investors focused on stimulus measures and economic recovery, showing that broader economic factors played a more critical role than the election outcome.
In Conclusion
As readers of this blog know, I invest for the long term, mostly in an S&P 500 index fund. I won’t be worried if the market goes down 10% after the election. Conversely, I won’t be overly excited if it goes up 10% after the election. Over the long term, elections don’t really matter much.
So don’t worry about the election results—at least not when it comes to your investing. As you enjoy the Halloween holiday, here’s one less thing to be spooked about!