Investing in an Election Year

As we move towards the end of the year, the US election in November is beginning to become a focus of many investors. While there are strong feelings by many on which party and candidate is the best choice for our country, it is important to keep a long-term focus and attempt to separate politically related emotions from your investment strategy. As we head into the general election on November 3rd , a few items to consider are listed below.

  • The market doesn’t like uncertainty. A study by Lord Abbett* on the inflation-adjusted S&P 500 price returns shows that negative returns leading up to an election are not uncommon. However, equity returns were positive on average, post-election, regardless of the party in control of the White House and Congress. In fact, the S&P 500 Index, in all political outcomes, was up at least 7% on average one-year after the election. This is similar to the historical average annual return for the index.
  • The market likes stability. For this reason, the best case scenario is often viewed as a divided government (the same party not holding the House of Representatives, Senate, and Presidency). In this scenario, there is not as great a possibility of dramatic shifts in policy and compromise is more likely. This is the current scenario where Republicans hold the White House and Senate while the Democrats have the majority in the House. The results of the election will undoubtedly have some level of impact on the markets over the next four years, however, maintaining a strategy that is appropriate for your time horizon and
    risk tolerance, even in times of uncertainty, is your best bet at accomplishing your financial goals.

This article is provided for informational and educational purposes only and is intended to be used as a guide for planning. It should not be construed as investment, tax, financial or other advice. Data and other information provided by third parties are believed to be obtained from reliable sources, but we do not guarantee the accuracy of such information. Investing in securities involves the potential for gains and the risk of loss and past performance may not be indicative of future results.

*Lord Abbett.