Market Commentary: Summer 2024 - Portfolios and Politics

How Presidential Elections Impact Investments

With the 2024 US presidential election on the horizon, many investors are understandably concerned about how the outcome might affect their portfolios. Over the last few months, one of the most common questions we have been asked is, “what do you think the impact of the US presidential election will be on my portfolio?” It's a fair question; with a polarized political climate where both sides see the other as a threat to the nation’s future, it's only natural to wonder how your investments will fare.

While the impending uncertainty may lead to market volatility in the short term, maintaining a disciplined buy-and-hold strategy has consistently proven effective over time. Reacting to political changes with sudden investment moves can be detrimental to your portfolio. However, history shows us that a disciplined, long-term investment strategy will weather the storms of political change. 

Performance Across Administrations

When looking at historical performance, most casual observers would assume that markets would do better under their preferred political party or candidates. But contrary to popular belief, the long-term returns are remarkably similar under both Democratic and Republican administrations.

Weathering the Political Storm 

Imagine if you invested only during one party’s presidencies. Whether you picked Red or Blue, you would lose out on years of compounding growth. Data looking back from 1961 through the end of 2023 shows returns reduced by at least 90% in either scenario. Remember, total time spent in the market has a much bigger influence than who holds the executive office. 

Votes and Volatility

Elections can still introduce uncertainty, especially with matters like taxation, interest rates, and trade and economic regulation (all amongst a time of sizable budget deficits) up for debate. Markets hate uncertainty, so it’s possible we’ll see some volatility as the election approaches. But by looking at the past, we also know that markets have a way of adjusting to their environment and finding ways to move forward. Moreover, the US economy is much more dynamic and substantive than the policies of any single administration.  

International Importance 

It’s also important to remember that your investments extend beyond the United States. Most of our client portfolios include a variety of asset classes, such as developed and emerging international holdings, as well as fixed income investments. Maintaining a well-rounded portfolio enhances stability, adding a layer of protection against any domestic volatility.  

Think Long-Term, Not 4-Year Term 

In times of political change, it’s crucial to remain calm – don't let Donkeys and Elephants dictate your Bulls and Bears. While it might be tempting to take action out of panic or excitement, making impulsive changes to your portfolio can be detrimental to your long-term returns. Instead, reach out to your Advisor when you’re feeling uncertain – we're always happy to talk through your concerns to help you feel confident in your financial future.