5 Tips for Investing During a Presidential Election Year

May 1, 2024  |  Doug Frawley

As we gear up for the upcoming presidential election, investors are eager to see how the markets will fare amidst the political rollercoaster.

We all know predicting market moves is tough, but digging into historical data can give us some insights into what to expect from the stock and bond markets during these politically charged times.

Research from LPL Financial dating back to 1952 shows that presidential election years tend to see an average return of about 7% on the S&P 500. Not bad, right?

While a 7% increase is a sign of growth, it pales in comparison to the more impressive 16.8% average gain usually seen in the year leading up to an election, as well as the stock market’s typical annual return of around 10%.

This suggests that while election years have often been positive for stocks, they haven’t been the strongest-performing years historically.

But don’t rely solely on these stats. Remember, past performance doesn’t guarantee future results.

With 18 presidential elections under our belt since ’52, it’s clear that each one brings its own unique twists and turns.

When we zoom in on re-election years, the picture gets brighter.

Since 1952, whenever the incumbent president has sought a second term, the S&P 500 has remained resilient, never once declining. On average, these years have seen a positive uptick, with the index climbing around 12.2%.

This suggests that the market responds with optimism when a sitting president seeks another term, likely due to the perceived continuity of policies.

So, what does this mean for those looking to make smart investment choices in a presidential election year? Here are a few tips:

  1. Diversification: Spreading investments across various sectors can help mitigate risks associated with any single market segment’s volatility.
  2. Long-Term Focus: Investors should maintain their long-term financial objectives and not get side-tracked by short-lived political events.
  3. Stay Informed: Keep abreast of the candidates’ economic agendas, as their platforms could have implications for the markets.
  4. Market Timing Caution: Steer clear of market timing. It’s difficult to successfully time the market based on election predictions… this strategy is riskier than it seems.
  5. Potential Increased Volatility: The market typically dislikes the uncertainty election cycles bring, so don’t be surprised if there is more volatility than usual leading up to the election. Keeping a long-term focus is key.

While historical performance during re-election years offers a hopeful outlook, it’s important to view these statistics as part of a broader investment approach rather than a prescriptive roadmap.

Investing during an election year requires a balanced perspective, adherence to sound financial planning principles, and a focus on long-term goals.

By staying disciplined and informed, investors can ride out the market’s ups and downs with confidence, knowing that sound investment strategies endure beyond the political cycle.

Until next time,

P.S. If you’ve been considering hiring an advisor to help guide you through the ever-changing financial landscape, take your first step today by scheduling a free consultation with one of our experienced team members. There’s no risk in exploring if we’re the right fit for your financial goals. Contact us now.

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