Camille Van Vyve
05 Nov 2024
No matter who wins the election, markets continue to rise
With only a few hours left until we learn the identity of the next occupant of the White House, anticipation is at an all-time high. There’s no doubt that whoever wins will have a significant impact on the U.S. and the world. But on financial markets? History suggests otherwise. Despite the stakes of this election, long-term investors are better off staying invested, regardless of the outcome.
Market performance over the long term: a nonpartisan perspective
Looking back over the past decades, one thing is clear: markets tend to grow over time. Is one party better for the global market? Apparently not. Over the last 70 years, the average annual returns of the S&P 500 during Republican and Democratic presidencies have been similar. More strikingly, markets tend to perform even better when the government is divided… because the status quo creates less uncertainty for businesses, which supports long-term returns.
The economy matters more than politics
While it might seem logical to think that each party influences the markets differently, the truth is that markets react more to global economic conditions, consumer behavior, and corporate performance. For example, recent years have shown how COVID-19, energy prices, and inflation had a major impact on markets, regardless of who was president. Economic cycles, technological advancements, and interest rates play a much greater role than the political orientation of governments.
Don’t try to time the market
In a previous blog, we established that missing just the 20 best days in the stock market over the last 100 years would lead to returns that are four times lower. Imagine the impact for someone who only invested during Republican or Democratic administrations! By exiting the market during certain cycles, investors miss out on the compounding effect, which is essential for long-term portfolio growth. Trying to “time” the market—knowing precisely when to get in and out—is a strategy bound to fail.
Better to stay the course
Even though the United States is the center of gravity for global markets, history shows that the president’s political affiliation doesn’t have a major impact on long-term returns. Rather than focusing on elections, investors benefit more from a consistent, long-term approach, with solid financial goals and a diversified portfolio. By staying invested in the global market, they build resilience to inevitable market fluctuations.
ETFs have no political color
Elections can bring volatility, and this one is likely no different. But no matter the outcome, markets are expected to continue growing over the long term. With a portfolio invested in a global ETF, you’ll capture the market’s return, which is ultimately very little influenced by political cycles. This strategy, in addition to being simple and affordable, frees you from emotional and disruptive judgments. You can see how it would work for you by running a simulation on our website and scheduling an appointment with one of our advisors.