There are few things that we Americans get worked up about as much as presidential elections.
One candidate, some of us feel, would be a disaster for the country, while the other would lead it in the right direction. That seems to hold true every four-year cycle, but this year emotions are pitched especially high. Spurring us along is the financial news media, which breathlessly advises us about how to invest for a Clinton presidency, or a Trump presidency.
The truth is that successful investing has no place for emotion. Successful investors care most about solid data. And if we look at the historical data around presidential elections, we can see that making reflexive changes to your investment portfolio now would be a mistake.
Market and political history suggest that the result of the coming election will have little if any lasting impact on the markets. Thus, as long as you own a properly designed long-term portfolio, the best thing to do is nothing.
Let’s look at a bit of history. Over the past 115 years, the Dow Jones Industrial Average has risen nearly 9% a year when a Democrat is in the White House. It’s risen nearly 6% under Republican presidents.
Does that mean a Democratic president is better for your portfolio? We don’t believe the evidence for such an argument is conclusive. In our view, larger forces such as inflation, interest rates and business cycles have a far greater impact on markets than do politics.
We understand that each candidate has made proposals about taxes and other subjects that could shake things up. And these headline-grabbing proposals can certainly move the markets in the short term.
But election campaigns require candidates to distinguish themselves with bold proposals. After the election, such proposals must make their way through the meat grinder that is Washington’s legislative process. Radical plans encounter resistance and are ultimately watered down. And these days, moving legislation through the gridlock in our capital is a monumental task.
It’s true that when a president’s party also controls Congress, legislation tends to move more quickly. But a monopoly on Congress and the presidency has occurred in just 26 years since 1945. And it doesn’t appear likely this time around.
If you are investing for long-term goals, we strongly advise you to separate your political self and your investing self. Don’t adjust your portfolio based on who is likely to become president. Instead, focus on what you can control. Make sure that you have a comprehensive financial plan. That you’re saving adequately to achieve your goals. That you’re managing your taxes as well as possible.
And as you cast your vote this election, keep in mind a bit of long-term perspective: We’ll be doing all of this again in four years.