Last week was the inauguration of Joseph R. Biden Jr., as the 46th President of the United States of America. He is entering the presidency with many challenges like a global pandemic and a political climate that is rife with tension.
The question is: what should you do with your portfolio in light of your politics? Answer: likely not much. Though past performance is no guarantee of future results, one thing that history has shown is that your investment decisions shouldn’t be guided by whether your presidential pick won the election or not.
Don’t get me wrong, politics matter. The character and policies of a President have an impact and an enduring effect upon real people’s lives but deciding whether you invest in the stock market or not on whether your candidate got in the office can be detrimental to your long-term wealth management goals.
For example, let’s say that in the midst of the financial crisis of 2008-2009 and right before the election of Barack Obama you were 100% in the DOW but pulled all of your monies out of it because you were convinced that his liberal policies would damage the stock market, you would have missed a total return of 149.4% and annualized returns of 12.1%.1
On the other hand, let’s say that you were on the left or simply a Never Trump-er and with the pollbusting election of Donald Trump you had been 100% invested in the DOW but concerned with his character and policies you sold everything when he was elected, you would have missed a total return of 56% and annualized returns of 11.8%.2
Let’s use another index with a longer time frame. Since 1953 the S&P 500 has gone up under every President—be they Republican or Democrat, except for the second term of Richard Nixon when he resigned, and Gerald Ford took over, as well as the two terms of George W. Bush.3 Therefore, roughly seven decades of history indicates that you probably should not be reactionary when it comes to a President’s impact on your portfolio.
Remember too our Constitution and three branches of government limit a President’s power and there are many other influences on the stock market like bubbles-popping, pandemics, technological advancements, and corporate earnings to name a few.
With that said, you might be filled with hope right now and confident in the next four years convinced the stock market will continue to perform well or you might be despairing and certain of an imminent stock market crash. In either scenario, you might be right; however, as one person said, you should plan for your plan not to go according to plan.
Investment decisions should be primarily shaped by your overall investment objective and time horizon. It’s one thing to tweak your portfolio considering the economic impact of the policies of a particular President, but it’s quite another thing to completely tie your portfolio decisions to how you feel about who sits in the Oval Office.
You may not like to hear it, but the stock market doesn’t care about your politics.