Don’t Invest Based On Political Party Affiliation, YCharts Warns

Although Elections May Create Short-Term Uncertainty, Investors Should Stick With Long-Term Goals, YCharts Says
Joe Kleven, Product Marketing Manager, YCharts
Joe Kleven, Product Marketing Manager, YCharts
Jeff Berman, Contributing Editor & Reporter, Wealth Solutions Report
Jeff Berman, Contributing Editor & Reporter, Wealth Solutions Report

Investors tend to lose when they only invest while the political party they support is in the White House, and the market tends to fare best during periods of a divided Congress, according to a new report released on Monday by financial research firm YCharts.

Also, echoing what Janus Henderson, Morningstar and UBS experts said to us last week, YCharts said in its report, “How Do Presidential Elections Impact The Market?” that the “most important takeaway” for financial advisors and their clients is: “While elections may create some short-term uncertainty, focusing on long-term investing goals should always be the most important factor in investment decision-making.”

While collecting data for the report, one “surprising revelation was the staggering impact of investing based on political affiliation on long-term portfolio performance,” according to Joe Kleven, Product Marketing Manager at YCharts.

“Opting for a party-biased strategy over the decades – investing only during the tenures of either exclusively Republican or exclusively Democratic presidents, then moving to cash otherwise – pales in comparison to the steady growth achieved by remaining invested throughout, emphasizing the critical importance of ‘time in the market’ over timing the market,” said Kleven.

But he said: “The most surprising revelation from the findings was how favorable the market has been during periods of divided Congress since 1950, showcasing the highest average annualized returns regardless of which party holds the presidency. This suggests that while government gridlock may hinder legislative progress, it fosters stability and predictability in policy, greatly valued by both markets and investors.”

“While government gridlock may hinder legislative progress, it fosters stability and predictability in policy.”

– Joe Kleven, Product Marketing Manager at YCharts

Other key takeaways from the findings included that the S&P 500 has consistently increased in value over the long term, no matter who is in office and whichever political party they are from, according to the report.

Dating back to the inauguration of John F. Kennedy in 1961, the S&P 500 posted a negative return during only two presidencies: Richard Nixon and George W. Bush, the report said.

“Making major investment decisions based on a president’s political party – i.e., being invested only during Democratic presidencies, then moving to cash for Republican tenures, or vice versa – is “probably hurting your portfolio more than helping it,” the report said.

Using an all-stock (S&P 500) portfolio as an example, the report said that choosing to invest only during Democratic presidencies since 1950 and sticking with cash otherwise resulted in a 5.11% annualized return.

Similarly, investing exclusively during Republican presidencies generated an even smaller 2.80% annualized return.

Simply “staying the course” produced the best result (8.05%), according to YCharts.

The markets greeted the prospects of a Biden presidency in 2020 more enthusiastically than Trump’s Electoral College win in 2016, the report pointed out. But the post-election period for each of them was generally positive for equities.

Since 1952, Democratic presidents winning reelection has historically led to the most significant S&P 500 returns during the post-election period, according to YCharts.

Higher average annualized returns have historically occurred during a divided Congress.

Under the divided Congress we have now, along with a Democratic president, the S&P 500 advanced 36.85% (28.69% annualized) between Jan. 3, 2023 – when the current Congress was sworn in – and March 31, 2024.

That has, so far, easily outperformed the 15.72% annualized return historically generated during this legislative formation.

Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.

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