Investing based on political preferences can be bad for your portfolio.
As the 2024 presidential election approaches, Americans are preparing to vote in what polls forecast to be a tight race. And, like many investors, you may wonder how the election outcome could affect financial markets and whether your investment strategy should change should one party take office over another.
Well, while elected leaders can influence economic growth by enacting laws and regulations, data suggests that who occupies the White House has little to no impact on investment performance.
Fundamentals Matter More
That’s because fundamental factors like corporate earnings growth and valuations impact the stock market far more than political headlines. And while politicians make many promises during election years, more often than not these often go unfulfilled because of the government’s system of checks and balances.
Moreover, the economic outcomes of policies are less predictable than officials think, with the economy more influenced by factors like job growth, interest rates, and inflation.
Missing Out on Growth
To this point, the charts below illustrate the financial impact of allowing political beliefs to influence investment decisions. The chart below (figure 1) graphs the S&P 500 Index starting with Dwight Eisenhower’s presidency in 1953 and is color-coded by political party.
The graph below (figure 2) compares the investment performance of portfolio decisions made based on political affiliation.
If an investor only invested in the stock market when a Republican was President, $10,000 would have grown into $83k today, excluding dividends. On the other hand, investing only when a Democrat was President would have returned $254k.
And while the gap may seem wide at first glance, the reality is that if an investor ignored the president’s political party and remained invested for the long-term, $10,000 would have grown to over $2.1 million.
The Big Takeaway
Political views can stir strong emotions but making investment choices based on those feelings can lead to poor portfolio outcomes. Instead, it’s better to focus on a time-tested disciplined investment strategy and avoid letting politics influence your long-term strategy.
The U.S. economy’s success, growth, and resiliency don’t change with each new election, and neither should your investment strategy.
That’s why it’s best to express political opinions at the ballot box, not in your portfolio.