What should you do to election-proof your financial portfolio? Nothing: Rick Kahler
In two recent columns, I suggested that consuming a politically unbalanced media diet could negatively affect your long-term investment returns. The more strongly people buy into the rhetoric of their political parties, the more difficult it is to be pragmatic about their investments.
I've witnessed this with every presidential and midterm election. A few investors always become fearful of an economic Armageddon if what they view as the "wrong" presidential candidate wins or the "wrong" party takes control of
This year, I know of several investors who were afraid of the midterm elections ushering in widespread instability and unrest. Some believed if the
Here's what I've done to protect my own investment portfolio from a possible
More:Sound financial decisions rely on balanced media diet:
Historically, stock market returns tend to be slightly lower for the two years following a presidential election. This trend has continued for the first two years of Biden's presidency, with the S&P 500 index down 0.75%. Conversely, the two years before a presidential election, stock market returns tend to be higher. This means history favors the stock market doing much better in 2023 and 2024. Research finds it doesn't make much difference which party controls the
To support this theory, an article from
The article found a different story after the midterm elections.
"The S&P 500 has historically outperformed the market in the 12-month period after a midterm election, with an average return of 16.3%. This is especially true for the one- and three-month periods following midterm elections, which historically have significantly outperformed years with no midterm election," according to the story.
History also finds that markets don't care much about the political ideology of a president. According to the 2019 Dimensional Funds report, the market has been positive overall in 19 of the last 23 election years (1928–2016), only showing negative returns four times. But, perhaps surprisingly, markets have historically preferred Democratic presidents over entire terms. Since 1929, the total return of the S&P 500 has averaged 57.4% under Democratic administrations versus just 16.6% under
More:It's not often easy to align your investing with your values:
That is why, viewed in the context of your long-term retirement portfolio, you need not worry about who controls
As usual, the best way to election-proof your portfolio is to leave it alone. This logical advice can be difficult to believe if your media diet isn't balanced. Rarely, if ever, do events unfold in the way polarized investors fear.
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