Don’t Vote Your Portfolio Out of Office

The Presidential race has entered the stretch run with roughly a month until the election. A frequent question we receive at this point in the election cycle is what will the impact on the market be?

Dimensional Fund Advisors has reviewed each Presidential election year and subsequent years’ performance of the S&P 500 to see if there are any discernible patterns in stock market performance.

returns-before-and-after-election

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They found there is little evidence of a systematic return pattern in election years. In general, market returns have been positive in both the election year and the subsequent year.

When looking at the full terms of presidents, virtually all have seen positive performance.

returns-during-presidetnial-terms

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The average return has been 10.1%. This makes intuitive sense as over time the expectation of stocks is to see gains.  Over four year time frames it is more likely that the average annual return will be positive.

What these charts are also showing is that market expectations of election outcomes are embedded in security prices. As new information comes out it is immediately incorporated into prices and thus represents an accurate price for the investment.  New information may surprise the markets and thus drives a price change, but this information is unknowable in advance.

We don’t recommend making any changes to your investment portfolio based on the current election. There will undoubtedly be some volatility around Election Day, but the market will soon move on to other issues.  When thinking about positioning your portfolio, focus on your portfolio’s goal and not the news story of the moment – even one as loud as this year’s election.

 

Index Performance Sept. 3Q YTD Trl 1 Yr
US Stock (Russell 3000) 0.16% 4.40% 8.18% 14.96%
Foreign Stock (FTSE AW ex US) 1.25% 6.94% 6.18% 9.96%
Total US Bond Mkt. (BarCap Aggregate) -0.06% 0.46% 5.80% 5.19%
Short US Gov. Bonds (BarCap Gov 1-5 Yr) 0.17% -0.17% 2.10% 1.69%
Municipal Bonds (BarCap 1-10yr Muni) -0.30% -0.11% 2.58% 3.40%
Cash (ML 3Month T-Bill) 0.05% 0.10% 0.24% 0.27%

 

*Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. Source: The S&P data is provided by Standard & Poor’s Index Services Group.

 

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