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Let's Get Ready to Rumble

Let's Get Ready to Rumble

| October 02, 2023

What do election years typically mean for the stock market? I’ve had several of you ask this and similar questions recently during reviews and phone calls. Now that we are about a year away from the election and just days away from the coming barrage of phone calls, junk mail, and commercials – it seems like a decent time to give this a look.

We found some helpful information in the rear-view mirror (see this embedded link for a deeper dive). It turns out, based on data from Morningstar/Ibbotson Association, that the S&P500 was positive 83% of presidential election years vs. 73% for all years. Having a 10% better chance of a positive year is nice, but not a statistical home run.

So, I went down a “rabbit hole” to see what else I could find. Keep in mind, election years can only (hopefully) tell us who will be president. We have to wait and see what that winner will actually do. Any market movement based on election results is solely based on sentiment – not actual policy.

But, guess what?! There is a whole body of research on the Presidential Election Cycle  which basically says the third year of a presidency is historically the best year for investors in the S&P500. The first and fourth years seem to be the weakest.  We only have 23 presidential cycles to look at since the S&P500 began but this seems to be a pattern. And remember past events are very limited in helping predict current or future events.

Are you somewhat unimpressed with using this research to help us make more money on your investments next year? Let’s end with this final piece. If you want to know why we put up with a market that seems fickle on good days and downright grumpy on many others – well, here it is. Time, not timing, is what matters. Should we invest before the election? Should we invest for the third year of the presidency? Is there a way to time potential ins and outs to the market? Time, not timing. If you want a good return, history points to getting in and staying in for 20+ years.

The research on staying invested is compelling. If you want to do well over time, do these three things:

¨ Invest in a diversified portfolio that matches your ability to stay the course (risk tolerance).

¨ Stay invested through tough days, weeks, or even years.

¨ Invest new money on days that end in “Y.” Yes, we are fans of buying when the market goes down. But over time, even that can be a trap if it keeps you from investing.

We don’t invest in our government or our politicians – we invest in our economy. America still has one of the freest economies in the world. I won’t torture you with more research, but if I did you’d see that presidential administrations have a small impact on the direction and success of the US economy. It is still We the People  working, building, spending, and investing that drives our  success.

Want to know if you are invested for the long-haul? Let us help!