2020 Election: Is This Time Different?

Although November 3rd has now come and gone, as we approached the election, some investors felt fear surrounding the results. This could have led to thoughts or conversations concerning people wanting to pull their money out of the stock market, allowing the potential “volatility” to blow over and then getting back in.  In this scenario, in a perfect world, you avoid potential market volatility, emotional stress, and are able to repurchase at lower prices. This sounds like a pretty good deal, right? Unfortunately, there is no historical basis for this plan to be effective, and abandoning long-term, goal-focused investing because of current events is no longer investing, but rather gambling.  Also, looking back over the last 20 election years, the market has produced negative returns only twice, and those instances can be linked to factors other than politics.

If further reassurance is needed, let’s take a deep historical dive into how the financial markets behave during election years, and more specifically whether a Democrat or Republican president significantly impacts investment returns.  Since political views can be highly personal, it’s common for investors to feel that their political ideology has a more positive impact on the market.  The true data shows just the opposite.

The stock market, as measured by the S&P 500, has reached and eclipsed an all-time high in EVERY decade on record. This is evidence of the fact that the stock market is financially agnostic to the party holding office. For example, there have been 7 Democrat and 7 Republican presidents since FDR took office in 1933. During that time, a $1,000 investment would now be worth over $14 million.

Current events have the unique ability to make us feel like they are unprecedented. However, every election in history has been marked with divisiveness and controversy, yet the stock market remains resilient. Don’t take our word for it though. The famed investor Warren Buffet once said: “If you mix politics with your investment decisions, you’re making a big mistake.”  Don’t let this election cycle be your big financial mistake.

Got questions?  Contact the Purifoy Wealth Team today!

*This article was written by Michael J. Purifoy, CPA, CFP®, Executive Vice President, Southwestern Investment Group and Wealth Advisor, RJFS

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