October 26, 2020
Are you concerned about the upcoming election and how it could affect your investments?
If history continues to repeat itself… from our perspective – over the past 120 years the long term performance of the market has shown almost no correlation to government policies. Whether we elect a Republican or a Democrat in the office of president it is best to stay invested in the market. The market has been good during both times. So, it is best to be invested during both times.
Examples in history:
If you invested $1000.00 in the S&P500 on New Years day of 1926 and you just left that invested continuously at the end of June of 2020 you would now have 8.6 million dollars. If you look at slices of time when a Republican has been in office, or a Democrat has been in office, the market typically goes up either way. There are dips either way as well.
Economic growth drives the stock market, not politics.
We are having excellent economic growth right now. The Atlanta FED just shared a 35% GDP estimate of 3rd quarter economic growth. “Hating the government is not an investment strategy.” It is interesting that the market is not affected by political uncertainty. It is affected by uncertainty in regards to the economy. Increased economic uncertainty like what happened when we had coronavirus in March – that is when the market dips.
Even if you don’t like either candidate or you think the current candidates are the most hated candidates of all time. The Gallup poll shared that even when the presidential approval ratings have been between 30-50% the annual gain of the stock market is still 15% return.. This is even when we’ve hated or haven’t been satisfied with the president.
Don’t fight the FED: (The Federal Reserve)
The FED controls interest rates. When the FED lowers interest rates that is called easing and stimulating the economy. When interest rates are low the stock market tends to do really well regardless of what is going on in politics. (like right now)
Some of you are nervous and want to go to cash because of the election. This is called the flight to safety. In January of 2003 we had a flight to safety where people began selling out of their investments and going to cash. In January of 2003 there was 2.3 trillion dollars sitting in cash as a nation. What happened to the market next? In the next 3 years, the stock market performed at a 16.4% average for the next 3 years. So, for those that went to cash they were missing out. Then, this happened again in January of 2009 and 3.8 trillion went to cash in the nation and the pattern repeated with the next 3 years yielding an average return of 19.2%. So, if you were scared and you pulled your money out to cash you missed out on a 19.2% average return on your investments. Now, as of May, 4.8 trillion dollars is sitting in cash. What do you think will happen next if history repeats itself? Past performance isn’t always indicative of future results, but we expect the pattern to continue. Mark Twain said, “The markets don’t repeat but they often rhyme.”
If your generally concerned we usually prescribe a 1-week break from the media and news.
Quotes about the news:
George Washington said, “Newspapers filled with all the invective that disappoint, ignorance of facts, and malicious falsehoods could invent to misrepresent my politics.”
Thomas Jefferson said, “Nothing can now be believed which is seen in a newspaper. Truth itself becomes suspicious by being put into that polluted vehicle.”
Bad news sells. Stand firm. Stay diversified. Stay the course.
Abraham Lincoln said, “Be sure to put your feet in the right place and then stand firm.”
If you have an investment account with GIA you are in the right place. If you have any other concerns or questions, please reach out to your advisor.