Will the U.S. Presidential Election Impact your Financial Plan?

If there’s one constant in investing, it’s this: markets tend to dislike uncertainty. And the political noise around the upcoming U.S. Presidential election can make matters seem more volatile and uncertain than usual. Each side predicts doom and gloom if the other side is elected. How will the U.S. Presidential election impact your financial plan?

As an investor, you may be wondering—and perhaps worrying—about how the election results will affect your investment portfolio. That’s not uncommon. The candidates may have significant policy differences, but despite the uncertainty, the S&P 500 has risen an average of 11.6% since 1928 during election years.¹ And, even without that data point, we don’t believe the result of the election should materially affect your long-term approach to investing.

Economic platforms of U.S. presidential candidates

This is not to say that markets over the next four years would look identical under any president. The Republican and Democratic parties typically have different approaches to taxation, trade, and regulation.

With Trump’s tax policies expected to sunset by the end of 2025, the incoming administration will be tasked with rewriting or extending those cuts. Presidential party and congressional control can certainly impact outcomes, especially if both are unified. Tax increases may impact corporate profits, and differing trade policies under each candidate may affect the prospects for growth in certain areas of the world.

However, neither should drastically hurt growth over the long term and, regardless of most policy decisions, markets are resilient. They are made up of individual businesses and managed by people who generally respond to world events and political developments by adapting to benefit themselves, their businesses and their shareholders. This will continue to be the case regardless of who wins the White House.

Presidential party, market response and your financial plan

While people may feel strongly about various presidential candidates, it is important to not let that cloud your judgement when it comes to your long-term financial health. Historically, the party of the president has not actually led to any clear pattern for stock market returns. The chart below, which shows the growth of a dollar invested in the S&P 500 since 1926, helps to illustrate this point.

This graph shows the hypothetical growth of $1 invested in the S&P 500 from 1926 through 2022 as well as which U.S. President was in office during each year. Source: https://my.dimensional.com/one-pagers/what-history-tells-us-about-us-presidential-elections-and-the-market

Diversification is more important than political outcomes

Here’s the bottom line: the policy differences between candidates should not be large enough to significantly impact the way you invest. If your portfolio is diversified, aligned with your long-term goals, and appropriate for you today, it will still be appropriate for you once the presidential election is settled. We may see additional volatility in the time around the election, as we did in 2020, but we believe that a diversified portfolio is the best way to manage volatility.

Whenever there is something as important as a presidential election, it’s hard not to worry about the impact. However, once the election results are known, businesses will continue to find ways to produce profits and serve their shareholders. As always, the Corient team will keep abreast of market factors and help our clients adapt as needed. For now, making long-term portfolio changes based on a single election is not the recommended course of action.

¹ https://my.dimensional.com/asset/503/market-returns-during-election-years

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