History has its eyes on US
Tomorrow is the US election. It is natural to wonder how the election and the next president (and wider government) will impact our lives. From our April tax bill to the performance of our investments, from the dreams of our kids to our next breath of air, all seem to be on the ballot alongside the candidates.
This blog is about financial matters that matter, not about politics. However, people routinely ask me how I think the election will affect the investment markets. The question is a fine one, but answering it in a satisfying way is a challenge. It’s like trying to guess which squirrel my dog will chase in the park today. I am pretty certain that she will chase a squirrel, but figuring out which one ahead of time is futile. Predicting how the investment markets will react to an uncertain outcome is like double uncertainty. Two layers of uncertainty don’t cancel each other out in the way that “I don’t know nothing” literally means I know something. Uncertainty compounds. The probability of a coin landing heads once is 50%. The probability of landing on heads twice in a row is 25% (50% * 50%). Investing is an exercise in predicting the future, which comes with irreducible uncertainty. Then again, so does living.
So, while we can’t predict the future, we can look to history as a guide. The short message is this: there has not been any sort of reliable correlation between how investment markets have performed and which political party was presiding. There is not any significant evidence that elections have had a dramatic effect one way or the other on investment markets. The only pattern worthy of action is that investment markets have rewarded the patient investor who has a long-term approach.
I plan to continue to act on the last sentence. My action is to leave money intended for the long-term in the markets. I’ll just ride the inevitable ups and downs. In the meantime, I am going to DO stuff that gives predictable short-term results. Things like,
- If I rake the leaves in my yard, I will feel satisfied
- If I go for a hike with my family, I will be fulfilled
- If I go mountain biking with my son, I will have fun
Whatever happens in the elections, the trails will continue to deliver results. For a taste of that action, check out the following shameless plug:
My son, Porter and his buddy created a biking video. They entered it into our local “Shoot the Trails” video contest. They took first place. Well done boys!
Back to investments
I don’t think there is any actionable pattern between elections, politics, and the investment markets. But, you don’t have to take my word for it. You should look at the data! I am including links to three different resources about how investment markets have performed as related to elections and different political parties. They are listed in order of increasing complexity. The first two are less than a minute each. The last is a set of 15 or so graphs showing how different markets (US, international, stock, and bond) have performed under different political administrations.
57 second Video: How Much Impact Does the President Have on Stocks? (source )
One-minute one-pager: What History Tell Us About US Presidential Elections and the Market (source )
Deeper dive into the data: Market performance of US and global stock and bond markets through different presidential administration (source )
To me, the lessons are clear: Over the long-term, the stock market has rewarded patent investors. So, as long as your investments are for the long-term, stay the course.
Is this time different than the past?
It is tempting to think that “this time is different.” Or to wonder, “Is this time different?” I can think of a million reasons why it might be. Certainly now is unique. Now has always been unique. But is it different? Here is a non-thorough, not statistically valid romp through the experience of various investors through the decades. I really enjoyed this read from another advisor:
“The Four Most Dangerous Words” (source )
Here is to an election day that is peaceful, ordered, and productive to democracy!
Sources and Reference
Source  – From Dimensional Fund Advisors (DFA). For more information about DFA, visit their US-based site: https://us.dimensional.com/
Source  – Blogpost written by David Kennon, June 24, 2019. Web address: https://kennonfinancial.com/2019/06/24/four-dangerous-words/