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Avoiding Investment Mistakes in an Election Year

Jacob Jaegle, CFP®
May 14, 2020

Historically, election years tend to give investors anxiety, and 2020 looks like it will be no exception to that rule, especially in the wake of COVID-19. Markets can be especially bumpy during election years, with sentiment shifting every time candidates speak, so investors get nervous, which is understandable.


If you take look at data trends, generally, market returns are positive during an election and the subsequent year. Overall, the data that shows these outcomes are mixed, though, and the fact that we’ve seen only seen 22 elections since 1932 makes it hard to determine any statistical significance from this research.

The average returns in an election year are 11.3%, whereas the average market return subsequent to an election is 9.9%. In fact, the average annualized return for presidential terms is 10.3% and there have only been four presidential terms where their annualized returns were negative (Hoover: 1929-32, Roosevelt: 1937-1940 and George Bush: 2001-2004 and 2005-2008).


Since 1972, when markets became more robust and investments in various assets classes were first possible, there were a total of nine positive and only two down election years (2000 and 2008). The average return for Presidential elections since 1972 is 8.9% compared to the 11.3% mentioned above.


Something to consider for 2020: if this year should happen to end negatively, one could argue it may have something to do with circumstances surrounding COVID-19 and not necessarily from an election-driven result.

Remember, nothing happens in a vacuum, so the mixed data we see in the past oftentimes has as much to do with many other factors that may be at play at any given time. In those election years where returns were strong, much of the reward came in the first four months of the year, not the final two months when the president is decided.


Here are a few common investing mistakes to consider during the 2020 election season:

Mistake 1: Worrying about Red versus Blue

We all love a winner, and that’s great when you’re a sports fan, but not so great when you get so wrapped up in the winning concept that you place too much importance on election results. An analysis of market performance clearly shows us that elections have made essentially no difference when it comes to long-term investment returns. Why?


Presidents don’t directly affect stock market performance; rather, their fiscal policies have an indirect impact. But it’s important to remember that these policies are lagging indicators as the amount of time it takes for a policy to pass through is tremendous. And by that time, their term may be near over. There are many other variables, such as the Federal Reserve and its monetary policies, that can stimulate or restrict the economy, so the takeaway I’d like you to focus on is that there are many factors in play beyond president and party.

Mistake 2: Worrying about primary season volatility

Markets hate uncertainty, and what’s more uncertain than primary season of an election year (on the heels of an already volatile year!)? Historical data also demonstrates that after primaries are over and each party has selected its candidate, markets have tended to return to their normal trajectory.

Mistake 3: Trying to time the markets around politics (or ever!)

You’ve heard us say this over and over: market timing is rarely a winning long-term investment strategy, and it can pose a major problem for portfolio returns. As is often the case with investing, the key is to put aside short-term noise and focus on long-term goals.

Keep Your Eyes on the Horizon

Politics brings out strong emotions and biases (just take a look at your Facebook newsfeed for proof), but we encourage you to put these aside when making investment decisions. Come November, one candidate will win the presidency, and one will lose. But the real winners will likely be investors who avoided the temptation to base their decisions around election results and generally stayed invested for the long haul.


If you’d like to assess your portfolio, we’d love the opportunity to go over it with you at your convenience. Schedule a time with us today.

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The information contained in this communication does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jacob Jaegle and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

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