Presidential Elections and Your Portfolio

MONEY TALKS – The 2016 presidential race may be the most tumultuous election the country has ever seen. Americans have been voicing their opinions now more than ever and the polls are expecting to see a record numbers of voters next Tuesday. Unfortunately, much like the national debates, the lead topics of conversation at the dinner table have not revolved around political policies. Rather than discuss the economy, foreign policy, immigration, or the Supreme Court, many Americans have been following the candidates’ leads and talking about email scandals and sexual misconduct. The result of these lewd conversations has left a negative taste in the mouths of democrats, republicans, and independents from Maine to Hawaii.

Much of the negative energy from the presidential candidates themselves, political advertisements on television, and conversations with friends and family has transformed into fear and mistrust. In fact, a recent poll by the Washington Post and ABC News showed that 59% of registered voters have an unfavorable impression of Hillary Clinton, while 60% had and unfavorable impression of Donald Trump. It’s clear that regardless of whether Trump or Clinton win the election, the nation is in fear of what the future holds. With more cynicism now than ever, investors are anxiously waiting to see how the stock market reacts to the announcement of the nation’s 45th president.

Unfortunately, the uncertainty surrounding this year’s election has prompted many investors to make dangerous predictions about which presidential candidate will be better for the stock market. Rather than rely on patience and portfolio allocation, many investors are trying to outguess the market based on who they think will win the election. For example, some investors are selling off their investments now, and rather than reinvesting in the market, they are waiting for the election results to determine when or if they’re going to get back in. While enticing, this hasty strategy could lead to costly mistakes and is unlikely to provide any significant advantage. The following illustrative information was compiled by Dimensional Fund Advisors. Exhibit 1 shows the growth of one dollar invested in the S&P 500 over the last 15 presidencies which span just over 90 years.

Exhibit 1: Growth of a Dollar Invested in the S&P 500 January 1926 – June 2016

growth-of-a-dollar-v-2

Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.

The data clearly shows that there is one key trend; over long periods of time, the market has consistently grown regardless of whether a democrat or republican was in office. Contrary to popular belief, there is no clear pattern that one party or the other will result in better market performance. As a matter of fact, from an investor’s standpoint, staying out of the market is a much more dangerous proposition than either Hillary Clinton or Donald Trump winning the election. By removing oneself from the market, an investor is eliminating any real chance of long-term appreciation within their portfolio.

At Lakeside, we counsel our clients to stick to a long-term investment plan and avoid the temptation of trying to time or outguess the market. Academic research has shown that it is very unlikely that investors can gain an edge by predicting how the stock market will perform based on the outcome of a presidential election. To capitalize in the equity markets, investors should develop a long-term investment policy and stick to the strategy regardless of the latest political headlines.

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