Each election year, many investors scratch their heads wondering about how the upcoming presidential race will affect their investment portfolios.
Their TV screens are plastered with political ads, their phones are bombarded with campaign text messages, and the 24-hour news cycle becomes oversaturated with updates, hot takes, and the latest polls.
There is nothing quite like the spectacle of an American election — especially for the office of the president. However, here at First National Wealth Management, we caution investors that being hyper-focused on the political climate is more harmful than helpful when investing.
How elections impact (or don’t, really) your investments
First and foremost, the economy is incredibly complicated.
Businesses and customers are affected every day by a myriad of factors that dictate spending and investing, and the sitting president is just one of them.
Some factors can be very large and slow-moving, like demographic change, while others turn out to be short-lived fads, like the 2021 GameStop meme stock craze.
Although presidential policies can certainly affect consumers and businesses, these effects are usually dwarfed by other factors, many of which are completely unforeseeable.
Instead of forecasting based on the president alone, investors should remember the innumerable other events that have shaped market returns over the decades. A dose of humility goes a long way toward better investment decisions.
This leads to our second point: the resiliency of the stock market.
As you can see in the chart below (Dimensional, 2024), there have been 17 presidents since 1926 (the inception year of what is now the S&P 500 Index).
This common composite started with 90 stocks and grew to be 500 by 1957. Many of these companies, such as AT&T and Coca-Cola, are still with us more than 70 years later.
Through wars and crises, booms and busts, this bellwether grouping of American companies has powered ever higher, compounding at an astounding 7% annually, above inflation.
If the recessions, depressions, financial crises, wars, inflations, bubbles, and troubles of the last century did not derail human progress, it is unlikely that the next president will — no matter how much it might feel that way.
Lastly, presidential politics can wreak havoc on investors through the most difficult variable in all of investing: emotions.
There are very few topics that can trigger our feelings the way politics can, and, needless to say, emotions are very unreliable forecasters.
Focusing on presidential politics can also give us tunnel vision, obscuring the bigger picture of opportunities for investment.
It’s hard to remain optimistic after the loss of your preferred candidate, yet this optimism is essential to staying the course in investing.
Thinking about the future is hard enough; clouding it with our political fears makes it downright impossible.
Staying the course and staying optimistic
Over the last 100 years, America has witnessed astounding growth and innovation that our ancestors could’ve hardly imagined. We have also endured terrible traumas and trials.
But while the presidential election can feel like one of those traumas, it has yet to stop the upward march of the U.S. stock market.
As we approach another round of campaigning, investors must remember the lessons of the past and stay the course.
The right investment portfolio balances risks with rewards across many different political and economic scenarios.
If you feel unsure about your investments during this election season, our team of wealth management professionals is here to help — just send us a note!
