Nothing is more polarizing than presidential elections. People get very emotional when discussing the pros and cons of candidates and the future state of the country. And those very emotions can sometimes send the markets reeling.
Fact vs. Fiction
There’s also sentiment that election years wreak havoc on investment portfolios, but according to historical stock market performance, this isn’t true.
In fact, since 1928, only four out of 22 election years have resulted in a negative return of the S&P 500 Index. And it appears these downturns were influenced more by economic conditions and world events rather than presidential elections. The four stock market downturns include:
- The Great Depression (1932)
- The ramp-up for America’s involvement in World War II (1940)
- The bursting of the dot-com bubble (2000)
- The Great Recession (2008)
Positive Historical Performance
In the 22 elections since the inception of the S&P 500 Index, 18 resulted in positive performance. The average annual return for all election years was 11.25%.1 Yet many people ignore these facts and let fear prevail.
Do Your Homework
As an investor, it’s important to not read sensational headlines and assume they’re factual, especially when saving for long-term goals like retirement. It’s easy to debunk myths by doing a little research. So if the herd mentality is urging you to do something that makes little financial sense, stay the course. And when you have questions, your financial advisor2 can help.
Keeping a long-term perspective can help spur investment growth, while trying to time the stock market can often have disastrous results. For instance, what would happen if you took $10,000 and stayed fully invested in the S&P over a 38-year period versus trying to time the market and potentially missing the five best market days? According to Fidelity’s data, not staying fully invested could cause your return to drop by 35%. See the chart below for the performance of keeping $10,000 invested and the impact of taking money out.
This illustration shows a hypothetical $10,000 investment into an S&P index fund from 1980 to 2018. Taxes and fees are not included. Source: Fidelity Investments.
In a down stock market, bonds generally perform better. That’s why having the right mix of investments – stocks, bonds and cash – will help you manage risk and rewards. Stocks have the highest average returns historically among the three asset classes, but come with more risk, while bonds usually are less risky although the returns are generally lower. Cash or cash equivalents such as share certificates, money market accounts or treasury bills while safe, usually offer the lowest long-term returns.
Rebalance if you Need to
When it comes to investing, sometimes doing nothing is just the right move. However, reviewing your portfolio at least annually can be beneficial. Over time your long-term goals will become shorter and may require changes in how you invest. Your financial advisor can help you rebalance or reallocate your investing mix so that it aligns with your goals, risk tolerance and investment timeline.
We’re Here to Help
Investing can be an intimidating topic, but our team of financial advisors2 can answer your questions and guide you with your choices. Whether you’re saving for retirement, a home or your children’s college education, we can help you find solutions that work for you.
Visit schoolsfirstfcu.org/advisors to learn more.
- Data Source: Morningstar/Ibbotson Associates.
- Financial Advisors are registered representatives of CUNA Brokerage Services, Inc. Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with SchoolsFirst FCU to make securities available to Members. Not NCUA/NCUSIF/FDIC insured, may lose value, no financial institution guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc. is a registered broker/dealer in all fifty states of the United States of America.