"How Will the Presidential Election Impact My Investments?"
“This is it! This is the end of everything!”
- H.L Mencken, the “Sage of Baltimore” on the morning of November 3, 1948, reacting to the election of Harry Truman
The historical record shows that the “Sage of Baltimore” made a bad, albeit common, call with this declaration. Had investors taken the above quote to heart and acted on these words written by Mr. Mencken by selling their stocks, it would have proven to be a horrible mistake.
Truman’s resounding and unexpected defeat of Dewey the previous day is one of the greatest political upsets in American history. Incidentally, it wasn’t the end of everything. In fact, it wasn’t the end of anything. Especially as far as stocks are concerned.
Over the next four years, the stock market as measured by the predecessor to the S&P 500 Index rose 50% excluding dividends.*
The world is a dangerous place so I feel compelled to point out that, during this 4 year span, a lot of bad things happened in the world. During Truman’s presidency, the Soviets developed their own atomic bomb, the US was involved in the Korean War and the country was torn apart by investigations into communist subversion. They say history doesn’t repeat itself but it sure does rhyme.
To bring this discussion closer to the present day, I began my investment career in 1992 when George Bush was president. In the last 28 years we have had 16 years with a democrat in the White House and 12 years with a Republican president. What have these changing administrations meant for stock market investors?
Something that I would like to point out: the S&P 500 Index was at 415.05 in July of 1992 when I started my career. The S&P 500 ended July 2020 at 3,207.62 for a total return of 672.83%.* Further, owners of the index receive quarterly dividends. The dividends of the S&P 500 were $12.34 in 1992 and had grown to $59.31 by July of 2020.* That works out to 380.63% growth in the income provided by the S&P 500. If an investor jumped into and out of the markets based on who won the White House they would likely have missed out on some of these very nice returns.
While the returns have been compelling, I will point out that it has been a volatile ride owning stocks for the last 28 years (and forever, really). Since 1992 we have had three major bear markets starting with the 2000-2002 market that declined 49%, the financial crisis of 2008-2009 when the S&P 500 Index dropped by 57% and, most recently, in March of 2020 when the market dropped 37% from the intra-day high on February 9 to the intra-day low on March 23. *
I will add to this by saying that my experience has been that the stock market often becomes volatile as we enter a presidential election season due to investor uncertainty and political positioning by presidential candidates. Concerning the 2020 presidential contest, there has been constant bickering and even accusations of possible election fraud. Sounds familiar. Do you remember the “hanging chad” fiasco between George Bush and Al Gore in the 2000 election?
As an investor, we must be wary of making investment decisions based on our political views. As I stated earlier, we have had three Republican and two Democratic administrations during my career. As presidential elections approach, people begin to ask “How will the election impact my investments?” Many say things like, “If Trump wins” or “If Biden wins” I’m selling my stocks.
Should you make changes based on possible election results? Our belief is that most investors should stay with their current stock/bond allocation.** If your plan is sound and your allocation to stocks and bonds is proper now, it will be correct after the election.
To illustrate why, let us highlight the positive: despite how you feel about the individuals in charge of our government and despite the problems the world has faced, our American economic engine has continued to power on. This engine is driven by the never-ending innovation at American companies that aim to improve the quality of life for people around the world. That has not changed and we believe it won’t.
I will leave you with the words of Warren Buffett who is arguably the best investor of our time. In an interview from February of 2017, Warren said this:
“People who mix their politics up with their investment activities, I don’t think that makes sense… [for half of] my adult life I’ve had a president other than the one I voted for but that has never taken me out of stocks…”
*https://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.XzQVDShKiUl
**Please consult with a qualified financial advisor to discuss your current allocations before making any changes to your accounts.