FAQ: I’m near retirement and with the election right around the corner, shouldn’t I be very conservative until after the election is over?
We have been fielding this one often lately, and understandably so. The 2020 election seems like none we have experienced in history. The rhetoric is far more partisan than it has ever been, and there doesn’t seem to be any candidate that identifies with the average American’s values. We’ve heard concerns about a potential change in power and fears about no change in power, fears that the results will be catastrophic, and even apocalyptic. And no matter where one falls on the political spectrum, there is an overwhelming fear across the board: “Are we all done for? Surely this time is different!”
Only it’s not.
In fact, we experience contentious, partisan elections of our President every four years. Each time, the fear is the same. The 2016 election, only four short years ago was just as partisan, just as frustrating, and just as venomous in its rhetoric. The line I heard from seven of my members at the time was “No matter who wins, we’re doomed.” We weren’t.
President Donald Trump has been President for almost 4 years and despite what you think of him as a President (we are limiting our discussion to investing), investors have done well during his term. Once he was elected, the market crashed more than 1,000 points overnight before the sun even came up with the headlines of a Trump victory. However, by the time the market opened at 9:30am the next morning, the Dow was down only 200 points. This was just about a 1% decline…hardly a crash. After that, it was straight up (practically) for 18-months. Now, that may be fine if you are a Trump fan, but what if Hillary Clinton had won?
Actually, we don’t know what would have happened if Clinton had won since any guess would be pure speculation, but the last two Democratic Presidents, President Bill Clinton and President Barack Obama presided over some of the best stock markets in our history even as they regulated and raised taxes. While President George W. Bush presided over one of the worst, despite implementing very similar policies to President Trump.
The point is not to favor one party over the other in our investment strategy; in fact, quite the opposite. History shows us that it simply does not matter. Markets perform poorly and well for Presidents who are Democrats and for Presidents who are Republicans. The result has less to do with who is in power and how high taxes are, and more to do with where we fall in the current economic cycle. President Bush inherited an overblown economy with the highest stock valuations since 1929. No amount of tax cuts and deregulation would have saved the stock market during his tenure. President Obama came into power almost at the trough of one of the worst economic crises of our lifetimes; the market had almost nowhere to go but up.
I am not defending any one candidate or party. The lesson of history is that there are plenty of factors that are consistent with market performance over time, the largest being valuation at the time of purchase. One factor that has essentially zero correlation is elections and the political party in power. Focus on what is important for your long-term investing and ignore the “noise” which seems important in the moment. If you had followed this advice in 2016, you were far happier, and wealthier, for it. If you trusted your “gut” and sold before the election, you had almost no opportunity to buy back in at a lower price. The longer you waited to reinvest, the more return you missed.
Stay the course, stay invested for the long-term, and watch your money grow through both Republican and Democrats tenures!