With the U.S. presidential election only weeks away, investors may be wondering how their portfolios could be affected.
The answer is that presidential elections typically don’t have a long-term effect on market performance.
Investors may point to the elections should markets become volatile in the weeks ahead.
Markets don’t like uncertainty, after all, and presidential elections add a layer of uncertainty.
In reality, going back more than half a century, U.S. equity market volatility in the months preceding and following a presidential election has been lower than experienced during non-election years.
Performance of a balanced portfolio, meanwhile, is virtually identical no matter which party controls the White House, according to Vanguard research going back to 1860.
Elections do matter, of course. Their implications are important in any number of ways. But elections are just one of many variables that affect the markets. Economic growth, interest rates, productivity, and innovation all come into play, and there are dozens more.
Rather than react to headlines, investors should remain focused on enduring principles that involve things they can control.
First, set clear investment goals.
Second, ensure portfolios are well-diversified across asset classes and regions.
Third, keep investment costs low.
And finally, take a long-term view.
In the end, short-term developments, like the 2020 presidential election, are less important to investors’ success than the big-picture trends that will shape markets in the years ahead.