It's Time to Vote. Is it Time to Worry About the Markets?
Less than two weeks to go until November 3rd. We'll soon know who the next president will be! (Hopefully... it may take a while to sort out the results.) If you haven't voted already, make your plan to do so. It's one of our most important responsibilities as citizens.
Elections always lead to predictions about the effect of each candidate's policies on the economy and markets. Of course, which party controls the House and Senate matters as well. Should we let politics and predictions influence our portfolios? We don't think so.
Let's look at a recent Vanguard study. Vanguard compared returns for a 60% stock / 40% bond portfolio during election years versus non-election years - going all the way back to 1860!
The result - there was no statistically significant difference in returns between the two periods:1
- Average return during election years (40 periods): 8.9%
- Average return during nonelection years (120 periods): 8.1%
Given the horse-race nature of political campaigns, you may think that in the months closest to an election, there would be a noticeable uptick in stock market volatility (the range of up and down swings). In actuality, the opposite has been true. Vanguard's analysis looked at the S&P 500 Index's annualized volatility from January 1st, 1964 to December 31st, 2019.2
- Over the entire time period, the S&P's annualized volatility was 15.7%.
- In the 100 days both before and after a presidential election the S&P's annualized volatility was 13.8% - lower than over the entire time period
The bottom line: Elections generate lots of headlines but should not sway you from following a disciplined financial plan. It’s understandable to have concerns, this year especially given the pandemic and how polarized our country is politically.
But as far as your portfolio and the markets are concerned, history suggests it will be a nonissue. Part of successful investing is focusing on what you can control, meaning maintaining perspective, discipline, and a long-term outlook - despite the short-run uncertainty that events such as elections can create.
Interested in learning more? Please connect with us.