It is the night of the election as I write this newsletter. With this election there are many strong feelings and opinions on both sides. With increased uncertainty, and roughly half of voters being upset at the results, elections have the possibility of turning into a temporary crisis.
Remaining calm during any crisis not only helps us psychologically, but it can also help us financially. I am waiting 48 hours after the results to send this newsletter considering some clients will still be upset at the results. When I coached youth competitive baseball, our team had a 48-hour rule. Which was, if a parent or spectator did not like a coaching decision or play, parents could talk to me about it 48 hours after the event, so they (and I) had time to cool off. Regardless of who wins, and when the dust settles, take a quick read below on past market performance respective to each party and hopefully it will help us all cool off.
Historical Market Performance & Election Outcomes
It may be surprising to learn that historically, the stock market has performed well, regardless of which party was in power. Since 1936, the 10-year annualized return of the S&P 500 Index was 11.2% when a Democrat was in the White House and 10.5% under a Republican president.1
Party-Based Investing
Despite that data, and because we can have passionate political opinions, there may be a strong temptation to invest (or not) based on which party wins. Voting with our dollars may feel good, but history shows it can be a costly choice.
Greatest Financial Risk in Election Season
The greatest financial risk investors face with elections is our individual reaction. How we respond to the vitriol, uncertainty, and possibility that our desired party is not in power can significantly influence our investment performance.
We may face an internal battle of our strong political feelings with the need to make rational financial decisions. While investing based on which party is in power may seem wise, history has proven it to be a very costly endeavor.
If the election noise gets you concerned, let’s talk it through. My goal is to ensure your financial decisions are rational and in line with your stated objectives and goals.
©The Behavioral Finance Network
S&P 500 with dividends reinvested from January 1973 – October 2024. Calculated at https://dqydj.com/sp-500-return-calculator/. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly. Past performance is no guarantee of future results.
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