Here We Go Again
By Nick Kendall
Every February I make sure to get in a viewing of Bill Murray’s movie Groundhog Day. The story is about a weather man in Pittsburgh who’s forced to report live in Punxsutawney, Pennsylvania on the aforementioned holiday to see if the woodchuck, Punxsutawney Phil, sees its shadow. The folklore suggests this will indicate if there is 6 weeks or less of winter remaining. Bill Murray’s character disdains the process and can’t wait to get out of town. He instead gets caught in a phenomenon where he relives February 2nd every day, over and over again.
Many of us have a “here we go again” feeling when it comes to the repetitive process of our election cycles, especially our Presidential elections. Prepare yourselves, we are only six months away from the Iowa caucus kicking off our primary season leading us to the polls in November of 2024. The uncertainty of upcoming elections can cause market volatility, which can cause a short-term adverse impact on your investments. The emotional response can lead to adjusting your investment exposure to stocks. The investment company, American Funds, does a great job over many of these cycles with a brochure called, “A Guide to Investing in an Election Year[1].”
The brochure just prior to the election in November 2020 took insights from over 85 years of investment data across 22 election cycles, and came to these realizations:
- US stocks have trended up regardless of whether a Republican or Democrat won the White House. A $1,000 investment in the S&P 500 index when FDR became president in 1933 would have been worth over $14 million today. During that time there have been seven Republican and seven Democratic presidents.
- Primary season tends to be volatile, but markets have bounced back strongly afterward. Stocks have returned 10.2% in the 12 months following primaries, compared to 5.8% in similar periods of non-election years.
- Investors often get nervous and move into cash during election years. Net asset flows into money market funds have been more than three times higher in election years than in non-election years.
- But staying on the sidelines has rarely paid off. It’s time, not timing, that matters most. Stocks have had negative returns in only two of the last 20 election years (2000, 2008), and both declines were largely attributed to asset price bubbles rather than politics.[2]
While none of this is guaranteed, it can be instructive. What is the biggest takeaway from this information? We have put in place a strategy for you, and your goals, which require our continuing to reevaluate on an ongoing basis. Until your circumstances change, we advise sticking to your plan and not making modifications based on emotion. Keeping your money invested rather than going to cash has historically been rewarded.
If you feel a discussion is warranted due to your concerns, or changes in your situation, please reach out to set up an appointment to review your accounts. In the meantime, stick to the plan and happy election season!
Please Note
When it comes to how frequently you should monitor your investments, there are two unhealthy extremes, with ‘never looking’ at one end of the spectrum and ‘obsessively looking’ at the other end. May we suggest using our quarterly commentary as a prompt to review your accounts, helping you avoid both extremes? You can review your current accounts by logging into www.cirstatements.com. If you have never logged into that site, please call our office and we will be happy to help you register.
[1] To download this full guide, go to:
https://www.capitalgroup.com/advisor/pdf/shareholder/MFGEBR-121-632421.pdf