Election

Investing in the Wake of a Divisive Election

The market doesn't like surprises and it sure got one on November 8th with the election of Donald Trump. Immediately after the election results came in, we knew the market was headed for some dramatics ups and downs, a term we call volatility. People have varying degrees of responses to volatile markets. Some want to sell everything and wait until things calm down, others see it as an opportunity to invest more. Which camp do you fall into?

Is This Year Historically Significant?

In one sense yes, but in another sense no. According to data by Dow Jones, the average change on the day after Election Day is negative 0.9%. The top declines are listed below:

Election Winner Election Day % change day after Election Day
Barack Obama (D) 11/4/2008 -5.27
Harry S. Truman (D) 11/2/1948 -4.61
Franklin D. Roosevelt (D) 11/8/1932 -4.42
Franklin D. Roosevelt (D) 11/5/1940 -3.32
Barack Obama (D) 11/6/2012 -2.37
George W. Bush (R) 11/7/2000 -1.58
Jimmy Carter (D) 11/2/1976 -1.14
Dwight D. Eisenhower (R) 11/6/1956 -1.03
Ronald Reagan (R) 11/6/1984 -0.73
Bill Clinton (D) 11/3/1992 -0.67

Where Do We Go From Here?

Jonathan Lemco, Ph.D., a senior strategist at Vanguard Investment Strategy Group and former professor of political science at Johns Hopkins University stated, "The markets don't like uncertainty, and presidential elections, by definition, add another layer of uncertainty."

According to research by Vanguard, it typically takes about 100 to 200 days after a presidential election for the resulting volatility to largely subside. After that, tracing back to 1853, history has shown that market returns are virtually identical regardless of which party controls the White House.

So What Can You Do?

  1. Remain Calm: You're going to hear a lot of noise. News outlets will (and have already) release stories with loaded language and outrageous predictions designed solely to garner your attention. Media outlets love to describe the market as "plummeting," "surging," "booming," "crashing," etc. Why? Because they get paid in attention: clicks, views, and papers sold. Calm doesn't sell— panic and greed do. Tune out all of the noise and focus on the long-term.
  2. Make A Plan and Stick to it: The biggest investment mistakes are not typically made based on careful, methodical planning based on historical data. Rather, they are usually made when an investor makes a knee-jerk reaction. Your biggest enemy of your investments isn't the presidential candidate of the opposite party, it's you. Too many people end up chasing goals that are not their own. The majority of world news and market events have no impact on your personal goals. Your plan should include allocating your money in a way that is in line with your goals and your tolerance for risk.
  3. Expect Volatility: Returns can never be guaranteed in investing. They can be expected, based on reasonable historical data and projections, but never guaranteed. One thing that can be guaranteed is volatility. If you are an investor in any capacity, you should mentally prepare yourself for the inevitable ups and downs of investing. If you can't seem to stomach the risk even after educating yourself, maybe it's time to change how your investments are allocated. If your investments will reach your goals on paper, but you're losing sleep at night, maybe something needs to change. Not in a reactionary, panicked way, but rather a planned and methodical shift.

 

Resources

How the stock market performs on, and after, Election Day

Worried about the election's impact on your portfolio? Markets are nonpartisan long-term

Stick with your plan...even when the market gets scary

Six strategies for volatile markets

The Election and Your Investments

The graphic below, courtesy of Fisher Investments, is a great big picture view of how the market has performed throughout various election cycles.

Elections and Market Outcomes - An infographic by the team at Fisher Investments