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Politics and Investing

Politics are very important to shaping the social and economic direction of our country.  Regardless of one’s political views, election years tend to elicit heightened emotions.  We understand that watching your investment and retirement savings fluctuate in value is emotional too, but decision making based on emotions will more often negatively impact one’s long-financial and retirement plan. 

Sandbox Chart: How has a 60/40 portfolio performed under different parties?

In other words, too often we let our political views dictate our investment views.  In studying the history of markets, we realize that markets generally don’t care who is in office.  Markets simply do not like uncertainty.  There are winners and losers based on government control, so once the election is decided the markets will know the investment playing field and valuations will adjust accordingly. Until then, we expect to see continued market fluctuations that may cause anxiety, but we encourage you to not make short-term decisions that could impact your long-term goals.  

This serves as yet another reminder to avoid investing based on emotions and that the range of reason so many  use to make investment decisions are impulsive, irrational and often costly.  You (and your children) will be grateful 50 years from now if you keep this mind.  

Chart 1: Government Control, the Stock Market and Compounding Returns

The chart below illustrates a $10,000 investment in the S&P 500 Index in 1961 would have grown to more than $3 million as of June 30, 2020. The time period is long, and also assumes no additional buying or selling, but is a powerful illustration of the impact of  compounding your investment dollars over time. There were many contentious elections of the past and this example shows simply buying and holding the market over time has rewarded those who are patient and did not let their emotions dictate a change.  

Chart 2: Government Control, the Economy and the Stock Market

The chart below illustrates the S&P 500 returns over six-month rolling time periods back to 1948, followed by a chart of quarterly percentage change in GDP.  Both charts are color coded for by who  had Government control or if Government was divided. The results show that it is incredibly difficult to predict as the results have been more similar than not over time. 

Four Timeless Charts:

You probably recognize these charts  from past Sandbox commentary and blog posts. These charts are timeless reminders that investing and watching your money fluctuate is emotional. We agree but we urge you to  avoid making changes to your financial and investment plan based on emotions as those  decisions are  often costly over time.