Don’t Buy the Rhetoric: Think Twice Before Making Investment Moves Ahead of the Election

DON’T BUY THE RHETORIC: THINK TWICE BEFORE MAKING INVESTMENT MOVES AHEAD OF THE ELECTION

With November 3rd quickly approaching, we’ve been getting investment questions like these lately: 

“Should I move my investments to cash and wait it out?”

“Should I be investing in ___ sector/stock/commodity since it looks like ___ is going to win?”

“What’s going to happen to the markets if ____ wins?”

These are fair questions given the lingering pandemic, racial divide and a vacated supreme court seat, but we won’t leave you in suspense on our opinion; we do not believe that you should ‘wait it out in cash’ or make other seismic changes to your investments ahead of the election.

These same questions arise every election season--why? In short, the rhetoric on both sides gets dialed up to a fever pitch.  Rhetoric is defined as “language designed to have a persuasive or impressive effect on its audience.” And in today’s social media driven world, is it ever easy to dial up the rhetoric!  One would think that the sky is going to fall no matter which candidate gets elected to the Presidency.  

Rather than fall prey to a ‘sky is falling’ mentality based on who might win the election, let’s take a step back and use history and data to guide our belief that you should remain committed to a long term, disciplined investment approach.

Markets Generally Rise, Regardless of the Party in Office 

Historically speaking, election results and party control have virtually no significance on long term investment returns. Stocks tend to trend upwards in the long term, regardless of the party in control. The S&P 500 indexed delivered an annual return of ~11% over the past 75 years, through both Republican and Democratic administrations. The only time the stock market was negative for a full presidential term was under G.W. Bush and Nixon, which both came during crises: the financial collapse of 2008 and the stagflationary spiral of 1973.

Staying Fully Invested Has Historically Resulted in Better Outcomes than Market Timing

Rather than ‘wait it out’, the data suggests you should simply stay invested. The chart below by Capital Group captures this sentiment.

 Looking back over the last 22 elections years (to 1932), shows that about two-thirds of the time, you were better off just staying invested through the entire election year. There were only 3 times where you were better off waiting until January 1 of the year after the election to invest.

Markets Don’t Care If You Don’t Like Our President

The interesting study below shows that some of the market’s best returns have actually occurred under very unpopular presidents. It’s certainly not wise to try to create an investment strategy based on approval rating of a president, but it shows that it doesn’t really matter for markets whether the commander in chief is well liked. As you see below, the highest returns dating back to JFK actually came under presidents with <50% approval ratings.

Elections Have Always Created Heated Debate

Every election cycle creates the feeling that ‘this time is different’, but contentious elections have been the norm, not the exception.

George Washington and Thomas Jefferson were actually the original purveyors of ‘fake news’ claims, suggesting that the media should be questioned.

And while the debates this year might be vitriolic, at least things haven’t escalated to a physical duel. Remember the famous pistol battle of 1804 that actually led to the death of Alexander Hamilton at the hands of Aaron Burr? It might be heated in 2020, but I don’t see things coming to an old-fashioned pistol duel!

Don’t buy the rhetoric. If you’re a long term investor, stay the course. We believe you’ll be glad you did in the end, regardless of the outcome this November.