Must-Know Facts: Retirement Planning & Presidential Elections

Amid a presidential election year, political headlines dominate the news, sparking questions and concerns about how election outcomes might impact retirement and investment plans. As a financial advisor, I often hear clients wonder how the elections affect their portfolios or retirement savings. It's a crazy time for everyone, but it's crucial to approach these times with clarity and confidence. Let's focus on the facts instead of getting caught up in political debates. I want to help retirees and soon-to-be retirees navigate these turbulent times and stay on a steady path toward their financial goals. So, let's dive in.

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Understanding Market Trends During Elections

Historical data can provide valuable insights into how the stock market behaves during election years.

Looking back at the S&P 500 Index's performance over the last 24 elections since 1928, we see that 20 of those years provided positive returns, averaging 11.5% in total return.?

Interestingly, the data shows that regardless of the party in power, the market performs well during election years.

When we break it down further to the first year of a four-year presidential term, Democrats have historically seen higher market returns than Republicans, with an average of 20.6% versus 12.3%.?

However, when we look at the entire four-year term, the average total return was 46.18%, with Democrats at 14.93% and Republicans at 7.85% yearly returns.

Market Performance by President and Makeup of Congress

While the presidency garners much attention, the composition of Congress can significantly impact market performance. Legislative powers, crucial for economic policy-making, reside primarily in Congress. When Congress is aligned with the President, swift policy implementation is possible, positively affecting the market. On the other hand, a divided Congress can lead to legislative gridlock, impacting market sentiment.

Historical data suggests that gridlock in Congress, where neither party holds a majority, can produce a stable market return of around 16-17% on average from 1950-2022, regardless of the makeup of the gridlock.

Wars or Geopolitical Shocks

Geopolitical tensions and conflicts have been a constant throughout history. While these events may cause temporary shocks or downturns in the market, the overall trend shows resilience over time. Looking at the S&P 500 since 1927 and significant wars or conflicts, the market tends to recover and maintain a long-term perspective despite the uncertainty.

Conclusion

Your retirement plan is your roadmap for the future. While it's essential to stay informed about political events and their potential impact on the market, it's equally important not to let them dictate your retirement strategy. Stay focused on your goals, trust the plan you've put in place, and remember that a diversified and balanced portfolio tailored to your financial goals and risk tolerance is critical. We hope today's article has been enlightening and reassuring. Stay steady, stay informed, and, most importantly, stay focused on your retirement goals.

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Sources:

First Trust Client Resource Kit – Elections

First Trust Client Resource Kit – wars, geopolitical shocks & the stock market