In the world of finance, very few events create as much anticipation and anxiety around portfolio stability as presidential elections. Uncertainty fills the air, and investors find themselves pondering how their portfolios will be affected by the run-up to and the results of the election.

Yet, as history shows, staying the course despite the electoral frenzy is typically the wisest strategy. Let’s examine how the upcoming presidential elections could affect your savings and investments and why you might want to maintain a steady hand.

Investor anxiety around portfolio stability

As the 2024 election date nears, anxiety when it comes to portfolio stability is driven by the ever-louder competition between parties and candidates. The disruptions of the 2020 elections are adding fuel to concerns in 2024, leaving little doubt of repercussions for the markets and individuals’ portfolios. In fact, investor concerns were ranked by a study done by a financial services company of one thousand investors nationwide with $250,000 or more in investable assets. Forty-nine percent were “very concerned” about how the election would affect their finances. In comparison, persistent inflation (35%), risk of recession (29%), rising interest rates (27%) and poor stock market performance (20%) ranked lower.

The myth of market volatility

In light of uncertain interest rates – and today’s unsettled geopolitical and economic environment – it’s easy to imagine that presidential elections are negative for markets and weaken financial stability. However, history tells a different tale. The same study revealed that from 1937 through 2022, the S&P 500’s average annual return was 9.9% in presidential election years and 12.5% in non-election years. Markets displayed resilience despite the rollercoaster of emotions and rhetoric accompanying elections. 

Election outcomes and market reaction

Investors would be well-served to look at historical market returns around presidential elections to avoid short-term decisions that could affect their long-term portfolio stability, performance, and planning. To determine how U.S. elections could impact the markets, Investopedia took the Dow Jones Industrial Average (DJIA) as a proxy for the stock market, monitoring from one month before to four months after the November elections. They examined the presidencies of both parties – with a unified Congress or with a split Congress – and found that party affiliation of the White House occupant has little significant effect on market performance over time. Markets are indeed nonpartisan. 

Congress: the true power player

The presidential elections may dominate the headlines, but the composition of Congress influences market dynamics the most. Rather than the presidency, the outcomes of House and Senate races are key. Legislative action drives sectoral performance and market sentiment – and down-ballot races will determine whether the next two years are spent under a unified or divided government. They could decide how much of the next administration’s agenda is accomplished. For example, unified Republican control could see priorities around extending the 2017 Tax Cuts and Job Act beyond 2025 and rolling back parts of the 2022 Inflation Reduction Act. Unified Democratic control could prioritize the Build Back Better Plan. However, under a divided government, gridlock may define the environment, forcing the next administration to rely on regulations (not on new laws) to fulfill its agenda.

Illusive campaign promises

Betting on specific policy or sector impacts can be highly risky, as few consistent patterns of relative sector returns have been seen in election years. Making investment decisions based on campaign trail promises is even less reliable. Rarely can a candidate – at any level – deliver what was proposed once they are in office. Executive orders are an exception, but legislatively, too many factors play into what policies get advanced, voted on by the House and Senate, and signed by the President.

The importance of staying invested

Despite the electoral enthusiasm, investors must anchor themselves in the fundamentals of sound investing: corporate earnings, interest rates and other economic factors. Returns are driven far more by the fundamentals of the underlying asset classes, so attempting to time the market based on political events is futile. Elections exemplify uncertainty – and market uncertainty is best dealt with by asset allocation that produces a diversified portfolio.

Letting emotions dictate investment decisions is unwise; your chances of achieving portfolio stability and success are far more likely if you adopt and stick to a thoughtful, long-term plan suited to your needs.

A call for steadfastness

The noise around the 2024 presidential elections will continue to grow, making it hard to ignore the excitement of sensationalist narratives. However, your path to portfolio stability lies in resisting the allure of short-term ripples. Instead, adhere to disciplined investment principles, stay the course and focus on long-term objectives.

At WH Cornerstone, we have many years of experience developing client portfolios that can confidently navigate the choppy waters of electoral uncertainty. Give us a call and let us review your unique circumstances; we can help maximize your portfolio’s long-term growth while minimizing its risks.

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