In the upcoming election, millions of Americans will vote with their wallet. After all, the party in office has a material impact on citizens’ finances, from tax rates to retirement plan policy to Social Security to student loan forgiveness.
You’d be wise to factor in where potential lawmakers fall on these issues when considering how you’ll vote. But don’t worry about how a particular candidate might affect the stock market, says Ryan Detrick, chief market strategist at the Carson Group.
“Do not let politics mix with your investments,” he told CNBC Make It. “A lot of people didn’t like President Obama. A lot of people didn’t like President Trump. A lot of people don’t like President Biden. The stock market did just fine under all three of them.”
Here’s what he says you should actually pay attention to — and what you should ignore.
Investors: Don’t sweat elections results
In a recently published note, Detrick analyzed decades worth of stock market performance under Republican and Democratic administrations.
Had you started investing with $1,000 in the broad U.S. stock market in 1953 — the year Dwight D. Eisenhower took office — and only kept your money invested during Republican presidencies (and pulling out under Democrats), you’d have just under $30,000 today, he found. If you followed the same strategy, but only invested with Democrats, you’d have about $60,000.
However, had you stayed invested during that entire time frame, you’d have $1.7 million. The reasoning for that is simple: The broad U.S. stock market has gone up in 17 of the 20 four-year administrations since Ike took office.
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Detrick’s calculations underscore two major points. First, the market tends to trend upward regardless of who sits in the Oval Office. And second, basing your investing strategy on short-term moves in the market will likely keep you from reaping the benefits of compounding interest over the long term.
What tends to matter for markets
Regardless of what you see on C-SPAN, you’d be wise to avoid making any wholesale moves in your portfolio based on how you expect the election to turn out.
If you have any rooting interest, says Detrick, it should be for gridlock. “What’s going to matter more [than the Presidential election] is the makeup of Congress,” he says. “When you have a divided Congress, that tends to be the best thing.”
Indeed, from 1951 through 2013, the S&P 500 posted an average annual return of 6.7% during periods of Democratic control in Congress and 11% when Republicans controlled both houses. When things were split, the market returned 14.5%.
Remember, though, that past performance is no guarantee of future results, and what goes on in the legislative branch isn’t nearly as important to stocks as underlying business fundamentals or the financial success of the nations’ industries.
“The bottom line is that politics are fun to watch. They matter, and they should matter to people. But when it comes to your investments, how the economy is doing is what matters,” he says. “We still see an economy that’s pretty darn strong. Those things matter more.”
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