Should I Invest in the Stock Market in an Election Year?

March 18, 2024

Before you tackle the relationship of politics and investing, you must tackle the relationship of money and investing with your actual life.

Investment decisions should be determined by more fundamental categories of personal finance like investment objectives, risk tolerance, financial plan, and time horizon.

Start there. Not politics.

Unfortunately, as I’ve witnessed firsthand, people don’t always do this. Apart from major life events like divorce and death, I can’t think of another category in my experience as a financial advisor that influences people more on investment decisions than politics.

This should not be the case.

Now you know, and now let’s get to your question by looking at a few data points.

According to JP Morgan Asset Management, since 1932 election years have—on average— had less returns and a bit more volatility for stocks in the S&P 500 than non-election years.1

 

Two things are worth pointing out when it comes to higher volatility: Firstly, although the stock market is inherently uncertain due to the unpredictable nature of life, heightened uncertainty surrounding elections may contribute to increased volatility. Secondly, it’s important to note that the extreme volatility of 2000, 2008, and 2020 was not primarily driven by concerns over politics and who might become President, but rather by events such as the bursting of the tech bubble, the Great Financial Crisis, and a global pandemic.

On the other hand, the world’s largest asset manager, Blackrock, uses a slightly different time frame, and shows stocks outperforming in election years. Mark Peterson writes, “On average, stocks have risen 11.6% during presidential election years since 1926, slightly better than the market’s average 10.3% return in all years.”2

Whether you want to rely on Blackrock or JP Morgan’s statistical time frame and indexes, the takeaway is: whether it’s an election year or not, on average, stocks outperform the average inflation rate of 3.10% significantly.3

With that said, many people do not have 100% of their portfolio in stocks. Usually, investors have some kind of mix between stocks and bonds. If this sounds more like your situation, Vanguard shows that for those that have something akin to the popularized 60/40 portfolio (sixty percent stocks and sixty percent bonds), there really isn’t much of statistical difference in investment return comparing election years and non-election years.4

Here is some more good news. Stocks tend to go up more on the second half of an election year than the first half of an election year.5 Ryan Detrick, of Carson Group, illustrates this in the following chart:

Will history repeat itself in 2024? No one knows.

Based on the historical evidence examined, the most reasonable answer to our initial question seems to be: politics probably shouldn’t play too much of a role in your investment decisions.

All of this probably isn’t the financial gossip you really want, though. You want to know what happens to the stock market when your political party wins or loses.

Tune in next week!

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Sources: 

  1. Meera Pandit of JP Morgan Asset Management, “Investing in an election year”, November 22, 2024. Accessed online: here.
  2. Mark Peterson of BlackRock, “How the U.S. Election may impact your portfolio”, February 16, 2024. Accessed online: here.
  3. “What is Inflation?”, SmartAsset. Accessed online: here.
  4. “Presidential elections matter but not so much when it comes to your investments”, October 26, 2023. Accessed online: here.
  5. Ryan Detrick, “16 Charts (and Tables) to Know This Election Year”, March 6, 2024. Accessed online: here.