BLOG: The Election
Since Wednesday, the most common question I’ve received is “what do you think the election will do to the markets?” My answer has been, “What I think will happen in the short-term, and what will happen in the short-term are probably totally different outcomes, and neither should matter if you stick to the plan.” Let me explain.
On Wednesday and Thursday of last week, the market had a significant rally after the election. Some would say it was an endorsement of Trump winning, while others would say it was simply a relief rally because the election was over. No one knows for sure. But someone looking at those results might conclude that the market will end the year higher as a result.
The problem is the short-term results of the stock market are impossible to predict. We could have some unforeseen crisis (world affairs, economic, etc.), and the market could react badly.
The next question (or the real question being asked) is, “Will Trump as president help or hurt my portfolio.” It’s a good question (one that doesn’t have an answer), but it ignores the idea behind long term investing. We have data[1] that shows the average annual S&P 500 Index returns[2] for Trump, over his 4 years, were 15.80%. The average annual return for Biden’s (almost)[3] 4 years has been 13.54%.
But the important figure is 15.42%. That’s the average annual return of the S&P 500[4] over both terms. Keep in mind, throughout this short period, we experienced a trade war with China, two presidential impeachments, a pandemic, Russia’s invasion of Ukraine, and record high inflation. But if you stayed invested and didn’t try to time the markets based on politics or events, your portfolio benefited immensely. How can this be the case?
It’s because we invest in companies, not the government. The companies we invest in are among the largest, most innovative, and resilient companies in the world. These companies have grown because they have been able to adapt to and thrive through different administrations, subsequent policy changes, and various crises. We invest in these companies because we have seen, repeatedly, that the best-run companies overcome obstacles and rise to new heights and higher earnings. To think this won’t be the case in the future is ignoring the history of American Capitalism. Or, as Warren Buffett put it during the Great Financial Crisis, “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”
My advice is to block out the distractions and continue to follow your plan. And, considering the weather has been cooperating, I recommend you go for a walk instead of watching the news. It’s better for your mental and physical health!
As always, feel free to contact me with any questions.
Regards,
Joe
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing includes risks, including fluctuating prices and loss of principal.
[1] Source: https://dqydj.com/sp-500-return-calculator/
[2] With dividends reinvested
[3] Data is through October, 2024 and Biden’s term ends January, 2025
[4] You cannot directly invest in an index