Episode Summary

Today on Agile Finance Radio, we will discuss what to expect for the upcoming election and what history tells us about the stock market performance during the presidential election years.

What should you do, if anything, to safeguard your portfolio during this potentially volatile time?

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Key Points

  • What does history tell us about election years?
  • Can the stock market predict who will win the election?
  • How will the outcome impact your personal economy/


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Show Summary

Election Historical Results

Let’s begin by looking at some numbers to get a sense of what has happened over the last 90 years.

According to the Schwab Center for Financial Research, the market has been positive in 17 of the past 23 presidential election years with an average annual return of 7.1%. That’s measuring the performance of the S&P 500.

That doesn’t sound too bad, so statistically, the odds are in your favor during an election year. If we look at the next couple of years after the election, on average, they are positive, just not as good. The average annual returns being 5.8% and 4.5%.

If we are a long term investor and have over five years before we need our money, it sounds like we should stay put. That’s assuming that you have a diversified portfolio and are primarily a passive investor.

I’m a little more agile with my portfolio. I have a core portfolio, but I also have part of it that I trade for opportunity. For me, I’ll monitor closely to see if I need to take some risk-off.

For my clients, I do something similar if it matches their risk profile. Everyone is different, and I don’t believe in one size fits all portfolio.

Does Election Move the Market?

This tells me that, in general, presidential elections don’t have that much of an effect on your investments. Of course, there can be risks to certain parts of your portfolio, depending on what the candidates are proposing.

Some candidates are friendly to specific businesses or industries. For example, Biden is all about renewable energy, and I think that’s part of why we’ve seen an explosion in the solar stocks and electric car market and not in the oil businesses.

However, health care is not as clear. Neither candidate is very detailed on what they plan to do. The market doesn’t like uncertainty, so you can’t get the same feel for what the market is currently doing.

Whoever wins the office is only a small piece of what moves the economy. We have to look at other factors, such as where we are in the economic cycle. The market ebbs and flows with the economy, which is influenced by corporate profits, trade, debt, and global events.

Stock Market as an Election Predictor

If the presidential election doesn’t influence the stock market, does the stock market predict the election?

If we look at the stock market performance for the three months before the election, it has been a close indicator of who will get elected. If the three months prior are positive, the incumbent party generally has won. This has happened in all but three times since 1928.

During the last election, the market trended downward the three months prior. During election night, as I was watching the futures market, it was a volatile session. I could tell just by watching the futures market that Trump was doing better than most had thought. It was down nearly 800 points or around 4.5%.

The market was reacting in fear since almost all the polls had projected Clinton to win. As the night went on and as investors assessed what that would mean for a Trump win, the futures recovered, and by year-end, we were up over 5%.

As of today, the S&P 500 is up for the prior three months and also YTD. However, with the coronavirus and social unrest, who knows what will happen. I don’t put much stock in the election polls, especially with all of the polling going on, and only two got it correct in 2016. The stock market has a better track record than the pollsters, and unfortunately, some of them use methods or pools of people that really don’t represent the American population.

Election and Your Personal Economy

The President is important to our country when we think about the bigger picture, but as for your personal economy, in my opinion, it’s more about you.

As I reflected on the last few presidential elections, I realized that the outcome of those Tuesday nights did not change my personal economic outlook, just as it won’t in the upcoming election.

Here’s why the outcome doesn’t mean that much to your personal economy.

  1. President has less effect on the economy than you think. The economy runs in cycles, and there will always be periods of boom, bust, and stagnant areas in between. And that’s regardless of who gets elected. Policy can shape the business and economic outlook, and that’s why it’s important to vote, but it is like turning a big ship. It takes a while to make that happen, and that gives you plenty of opportunities to adjust since you are an agile vessel. Economic cycles typically run in 8 to 10-year patterns.

  2. You have the choice of what action you will take. Regardless of which candidate won, you are still responsible for the daily decisions you make to achieve your goals. I don’t think the President will come to my house and tell me what to do, nor do I want him to.

It’s still up to me to take action on the things that will benefit me and my finances. You get to choose if you will make yourself a better person in your job, family, health, and community by the action you take. Your personal success is not based on the elected officials’ decisions.

  1. You get to choose how you respond. It’s okay to be disappointed if your candidate didn’t win. Life is full of ups and downs. However, your attitude is your responsibility, and you shouldn’t let other people determine your level of happiness. You get to decide if you react or respond to your circumstances in life.

If you react, you are more likely to blame others and do something that you will regret. Or you’ll just complain and do nothing. When you respond, you get the opportunity to evaluate and determine what’s the best option. Then you can make a decision that is the best given the circumstances.

The Final Vote

I’m thankful that I live in America and have the choice to participate in electing our officials. It’s sad and disappointing to see how many people don’t participate in this privilege.

An election is a binary event. For the most part, when it comes to your personal economy, that event shouldn’t impact your financial future. Over time, if the same voting choices are made that move the country to an extreme position, then yes, the impact could become real.

I think it’s essential to be engaged in our political process since who we elect affects social and civil issues and the macroeconomic picture.

It would be best if you didn’t base your success and hope on the government and the action or lack of action that it takes. It’s up to you to make a difference in your personal and local economy. Your activity is the best gauge for how well you will do and the ability to get what you want.

If that doesn’t help, just remember you only have to wait four more years!

Final Thoughts

If you’re concerned about how your portfolio is positioned for the long term and want someone to look over your situation, then head over to agile finance radio.com and select the work with me option. You can schedule a free assessment call with me, and we can talk about your unique situation.

That does it for this episode of Agile Finance Radio. Tune in next time as we discover more ways to win with money, gain at life, and ultimately retire with confidence.