Why does rocking the vote rock the markets?
Politics…not exactly a “safe” subject to be writing about in this polarized atmosphere we currently live in, but with the 2018 midterm election just about behind us, now is as good of a time as any to discuss a very common question/concern we’ve been hearing from clients on both sides of the political spectrum. Clients often ask:
“With the election coming up, how will the results impact my returns?”
First and foremost, a quick and very important reminder that blooom manages retirement accounts. The investments in which are determined based on your age and how far away you are from retirement. The closer to retirement you are, the less a stock market reaction to an election will impact your retirement account balance. But for the vast majority of blooom clients that are decades away from retiring and have significant exposure to U.S. stocks – no matter the results, markets movements in either direction will likely be reflected in your retirement account balance, for better or worse.
That being said, let’s talk about that question because it’s an important one and it’s what is on nearly every investor’s mind right now.
Neither party knows how the elections will affect returns.
October was bad one for stocks, with the S&P 500 dropping over 10% from all-time highs set in September. A lot of this can be attributed to the uncertainty of the midterm election and what it could mean for the economy and the stock market going forward. The stock market does not like uncertainty, but this is not something new by any means. The lead up to any election is often accompanied by increased stock market swings, both up and down. Historically, we’ve seen that the period following elections has, on average, been a positive one for stocks. But remember, that is an average. What actually happens this time is truly anyone’s guess.
Why worry this time?
The truth is we tend to always think that this next election is different or more important than any other and we very easily seem to forget that political uncertainty and polarization are nothing new to the stock market. Wars, political scandals, terrorist attacks, you name it. We still don’t have a single example in our entire history of a market downturn that was not followed by a recovery, and often a robust one. So why worry this time? There is very little this market hasn’t experienced already at some point in the past and we know that no matter which party is in power, the impact on the stock market is not measurably different in a way that should influence any change in a long-term investment strategy.
You know what happens when you assume…
Elections often provide us with fantastic examples of the reasons why attempting to guess or make short-term return assumptions (market timing) is one of the worst things you can do to yourself and your future when it comes to your investments. No matter what the market does in the month or months following this election, a simple chart dating back all the way to 1896 can show us why it truly doesn’t matter one bit. We often tell clients that it’s not a matter of timING the market, but instead time IN the market that makes the biggest difference in the end.