The unusual opportunity of the U.S. election

Lavern Vogel

Every four years, the U.S. presidential election delivers, right on schedule, a surge of uncertainty that some market observers insist will drown investors who don’t act now!

We know better. We know the biggest risk investors face is changing course, perhaps in a panic, succumbing to uncertainty amid sensational headlines and getting it wrong. The Vanguard principles for investing success, intended to guide investors steadfastly toward their long-term horizon, are perhaps never more useful than at times such as these.

That the election arrives with plenty of notice gives investors an unusual opportunity to gauge how comfortable they are with uncertainty, a phenomenon that our investing principles contemplate.

‘But this time is different’

It’s fair to say that this election presents some unusual circumstances for the markets. While we hear “But this time is different” with every presidential election, there’s a grain of truth in the assertion this time around.

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The presidential election and your portfolio

Lavern Vogel

Transcript

With the U.S. presidential election only months absent, buyers may well be questioning how their portfolios could be afflicted.

The remedy is that presidential elections typically don’t have a extensive-phrase impact on current market effectiveness.

Traders may well position to the elections really should marketplaces become volatile in the months in advance.

Marketplaces don’t like uncertainty, right after all, and presidential elections add a layer of uncertainty.

In reality, likely back much more than 50 % a century, U.S. equity current market volatility in the months previous and pursuing a presidential election has been lessen than expert during non-election several years.

General performance of a balanced portfolio, in the meantime, is pretty much identical no subject which occasion controls the White Residence, in accordance to Vanguard research likely back to 1860.

Elections do subject, of class. Their implications are essential in any variety of strategies. But elections are just

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What the election means for investors

Lavern Vogel

This infographic shows how financial markets have performed under Democratic and Republican presidents, and during election years in general. The market’s performance has been roughly the same under Democratic and Republican presidents. Over the 95 years they held office between 1860 and 2019, the annualized compound growth rate under Republicans was 8.3%. For the 65 years Democrats held the White House, it averaged out to 8.4%. Experts believe this statistically insignificant difference offers little to no value when it comes to your investing strategy. Month-to-month market performance during election years hasn’t followed any distinctive patterns—the numbers are very close to random. Stock volatility tends to be lower in the months before and after a presidential election. From 1860 through 2019, the average S&P 500 Index volatility 100 days before and 100 days after elections was 13.8%, compared with 15.7% overall. Markets are complex, and their performance isn’t tied to any one variable alone. Politics are just one piece of a much bigger picture. Above all, stay focused on your own goals and long-term investing strategies. That’s what matters most.

Learn more about why patience and perspective are so important when you invest. Goals and follow-through are big parts of every long-term plan. And remember: we’re all in this together.

* 60% GFD US-100 Index and 40% GFD US Bond Index, as calculated by historical data provider Global Financial Data. The GFD US-100 Index includes the top 50 companies from 1850 to 1900, and the top 100 companies by capitalization from 1900 to the present. In January of each year the largest companies in the United States are ranked by capitalization, and the largest companies are chosen to be part of the index for that year. The next year, a new list is created and it is chain-linked to the previous year’s index. The index is capitalization-weighted, and both price and return indices are calculated. The GFD US Bond Index uses the U.S. government bond closest to a 10-year maturity

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