Politics & Your Investments

Impact of Politics on Market Returns

We are officially halfway through a presidential election year and, with one presidential debate already behind us, it seems harder and harder for most Americans to avoid talking politics with friends, family, and co-workers around the proverbial water cooler.  With this heightened sense of political awareness growing among many of you, we thought it would be helpful to review the historical impact that politics have had on the markets and on investment returns.

Whether you lean left or right, the following two illustrations make it hard to argue that politics have historically had any negative impact on overall market returns.  In fact, the average annualized return of the S&P 500 index, for US Presidential Terms, going back 95 years, has been 9.5%.

Altering one’s investment allocation out of fear of a future political outcome is a classic market timing strategy.  Market timing is among the most difficult of all investment strategies to implement successfully. Attempting to time the market often leads an investor to experience poor investment performance.

As the next slide illustrates, investors should have confidence that capitalism is agnostic when it comes to politics.  Companies are generally very nimble in adapting to government policies and economic conditions to remain profitable, and markets have risen under a variety of US Presidents.

We remain bullish on the future of the capital markets, and believe that they continue to offer you one of the best opportunities to grow your wealth over the long term. 

As always, please reach out if we can be of assistance.

- Your DecisionPoint Financial Planning Team -