The Markets and the Election

Why what happens in the election shouldn't affect your long-term investment decisions.

Will what happens in the upcoming US election affect your decisions regarding your investment portfolio?

The short answer is, No.

But to understand why, read on.

When Credit and Blame Aren’t Warranted.

Politicians are quick to claim credit when the stock market goes up and equally quick to blame their opponents when it goes down. That is to ascribe far too much influence to the politicians.

There are many complex factors affecting the stock market at any given time. Politicians aren’t near the top of the list.

To understand why, think about how companies make money—which does affect their stock price.

Let’s assume one party decides to implement large-scale tariffs. Most independent economists reason that this will raise the price of intermediary goods and services leaving companies with a choice.

They can decide to accept lower profit margins—or they can decide to pass these increased costs on to their customers. (And research suggests that companies tend to raise prices more that their costs increase. They can blame the rise in prices on the cost of supplies.)

Which do you think they would choose.

The latter, of course.

This is just one example of many applying to the policies of both parties. In short, companies are very good at adapting to their circumstances.

Now, clearly, different policies might be favorable for some companies and unfavorable for others. This is where diversification helps.

And this is where a market-cap-weighted index like the S&P 500 really shines. Companies favored by a policy may move up as a percentage of the index while disadvantaged companies may move down. As we noted in previous posts, the S&P 500 has an unfair advantage because it “rides the winners.”

Obviously, different policies might matter to you in a variety of other ways, including if you have strong policy beliefs, but your stock portfolio won’t care.

Elections and Time

And don’t forget our golden rule about Time (see Core Post No 2).

When most people ask whether the election will affect the stock market, they are thinking about whether it will affect the market in the near term, not over the next 10, 20, or 30 years—which is far more important to your future financial wellbeing.

And, as we’ve noted in previous posts, you should never put stocks in your Short-term Portfolio.

Stock Market Returns by President.

While we’ve established that it doesn’t really matter, we understand that people are curious to know how the stock market has performed under previous administrations. Here you go:

In Conclusion

Keeping in mind that Time is the critical context for investing and that long-term investors should adopt a long-term lens, you can see that the worry about the election—as far as it has to do with your investment decisions—has little impact.

Obviously, it can have a more meaningful impact on other aspects of your life.

But, as to the stock market, it’s one less thing to stress about.

Stuart & Sharon