This election season has been interesting to say least, but some things never change, including the leading candidates from both parties predicting dire economic consequences if the other is elected.
As we listen to the rants of the various politicians, are there any useful political trends that we can consider as investors? Will the person sworn in on January 20th cause your portfolio to tank or skyrocket?
The answer, perhaps surprisingly, is no!
Should you wait to invest until your favorite party takes office?
If your nightmare candidate gets the keys to the Oval Office, you might be tempted to liquidate all of your investments and start burying gold in your backyard, but history shows that you could be making a big mistake (not to mention what all that digging is going to do to your lawn!)
OppenheimerFunds recently released a fascinating report that showed that investing $10,000 in the Dow Jones Industrial Average in 1897 would give you $4.3 million in 2014. If you had used that same strategy but taken your money out every time the other party held the White House, you would end up with less than a million dollars.
In other words, the stock market doesn’t play political favorites. It goes up and down no matter who is in the Oval Office, and so whether you love or hate our next president, you shouldn’t base your investment strategy on your political leanings.
What about investing when the president’s approval rating is high?
According to the OppenheimerFunds report “Compelling Wealth Management Conversations”, since the Kennedy administration, the sitting president has been viewed unfavorably by more than half of the country 45% of the time. Congress’s approval rating has been even worse, approaching the favorability of poison ivy. The reality is that over the past 55 years, the markets have performed best when the president’s approval rating polled somewhere on the low side, between 35-50%. Hence, an unappreciated president might bode well for investors at times.
What about a divided government?
Are the markets happier when the politicians are cooperative and getting more accomplished? No, gridlock seems to be surprisingly good for Wall Street (and political news show hosts). The average Dow Jones return during periods of divided government has been 7.0%, while returns during a unified government have been a measly 4.6%. In short, the markets prefer stability and less change in laws and policies.
Overall, the landscape of our federal government may have some impact on investor returns. Certainly, when legislation is passed that impacts company profits, such as the recent elimination of tax inversion deals, the stock markets will experience a short term effect. On the other hand, there are far more important factors that impact both the economy and the stock market over the long term than which party resides in the White House and what their spending policies entail.
What that means for you is that it’s probably smarter to keep an eye on the economy as a whole rather than making investment decisions based on the current occupant of the White House. Presidents come and go, but sound investment strategy is something that people on both sides of the aisle can get behind. To get even more good investment advice, take a look at our investment and saving article archives.