With the presidential election only weeks away, investors may be wondering how their portfolios could be affected by the outcome of this contentions political season.
High levels of stock market price volatility is a reflection of investor anxiety which serves as a self-reinforcing mechanism. As volatility rises, investor anxiety tends to rise, which leads to more volatility.
The answer---based on Vanguard research that looked at decades of historical data---is that presidential elections typically don’t have a long-term effect on market performance.
According to Jonathan Lemco, Ph.D, a senior strategist in the Vanguard Investment Strategy Group, it’s understandable that investors might have concerns because of the different policy positions of the candidates and the strongly held views of voters of all political persuasions.
According to Dr. Lemco, market volatility typically dissipates shortly after Election Day, returning to more normal levels once the markets have had a chance to digest the news.
Vanguard research going back to 1853 shows that stock market returns are virtually identical no matter which party controls the White House.
So, once you take into account volatility, the returns under indistinguishable Dr. Lemco says, the returns under Democratic and Republican administrations are virtually indistinguishable. The meaningful drivers of your portfolio performance are diversification and asset allocation, coupled with keeping focus on your long term goals.
Keep in mind that many factors influence market behavior. History suggests the most important is market valuations, but others include globalization, technology, demographics, the Federal Reserve, the economy and unforeseen events such as wars and natural disasters.
So with this Presidential Election unusual from many aspects, with many strong feelings, coupled with distrust and frustration, history would suggest that regardless of the outcome you need to maintain your discipline and keep on track with your long term goals.
But, also remember that any new president must work with Congress to pass any new laws and with the country divided there is a probability that we will have significant gridlock, plus the Federal Budget Deficits will constrain what a new President can do.
Let me again express my thanks for your continued trust and loyalty.
Blog NO. 94 – 2016 Election and the Stock Market
Information in this report comes from the following sources: Vanguard, Forbes. Com and LPL Financial
Investing involves risk including the risk of loss. There is no guarantee that a diversified portfolio or asset allocation will enhance overall returns or out perform a non-diversified portfolio. Diversification does not protect against market risk. Information in this report comes from the following sources: Vanguard, Forbes. Com and LPL Financial