What Does the Election Mean for Your Investments???

(FYI - this post was written in the week following the 2024 presidential election.)

Even if you don't follow financial news, you probably heard that stock market prices jumped last week as soon as the election was called in favor of Donald Trump. Let's take a moment to recognize that individual investors like you & me don't move the needle when it comes to stock market prices. It's the investors who manage tons of money (think hundreds of millions and billions) who can drive prices up or down like that, and they are betting that a second Trump presidency means lower corporate taxes, less corporate regulation, and more corporate profits.

But another important investment trend isn't getting as much attention: bond prices dropped after the election, indicating that bond investors (again, not people like you & me) anticipate higher inflation in the coming years. Here's the idea: interest rates go up when inflation goes up. If you own a bond that pays, let's say, 5% per year and you *think* that interest rates are about to increase, then your bond is less attractive than one you could buy later at, let's say, 5.5% or 6%. So investors sold their current bonds to free up cash for these hypothetical higher-interest future bonds, and when lots of people sell all at once it drives down the price. (Bond prices and yields (interest as a percentage of price) are inversely correlated, meaning that as prices go down, yields go up. This is what happened last week.)

So while the stock market prepares for a party, the bond market is preparing for higher inflation & interest rates. Kind of a mixed message, right?

So what does this election mean for your investments? My answer is a two-parter: 1) it probably won't make a ton of difference in the long-term and 2) nobody knows. And I'll stand by that second part through thick & thin: nobody knows what will happen in the future. So all of those big-time investors moving the markets *think* they know what will happen, but they're really just guessing.

It's well documented that the party that holds the presidency makes virtually no difference when it comes to stock market performance. The charts in this article show that since Eisenhower, the median compounded return under Republican presidents was 10.2% and 9.3% under Democratic presidents. However, the median single-year return was 12.9% under Democrats and 9.9% under Republicans. (The article was written in July of this year, so it includes the first 3 years of Biden's presidency.) In a nutshell, the data suggests that stock market performance isn't really correlated with which party sits in the Oval Office.

But clearly those big-money investors *think* they'll do better under Trump. Is that based on reality or just a lucky feeling? I did a little research of my own: I compared the change in the S&P 500's opening price the day after the 2016 election (Trump is elected) through the closing price on election day 2020 (Biden is elected) with the opening price the day after the 2020 election and the closing price on election day last week. And guess what? While the S&P 500 did great after Donald Trump got elected the first time, returning about 58.1%, it did even better after Joe Biden got elected in 2020, returning about 69.8%! (I pulled all of my data from this site.)

Again, no one knows what the future holds, including me. But long-term investors actually did much better after Biden got elected than after Trump’s first election.

Which is all a long-winded way of saying: you don't need to change your investing strategy just because of an election. There are other good reasons to reconsider your approach, but an election isn't one of them. If your life circumstances have changed, that’s a reason to rethink your investment strategy. If you’re worried about your overall risk exposure, ok, we can do something about that.

But if you just want to know how to get ahead (or avoid falling behind), my best advice is to ignore any short-term market trends and instead choose a strategy that lines up with your risk tolerance, your timeline, and is likely to work over the rest of your life – and then stick with it for as long as possible.

Thanks,

Timothy Iseler, CFP®

Founder & Lead Advisor

Iseler Financial, LLC | Durham NC | (919) 666-7604

Iseler Financial helps creative professionals remove stress while taking control of their financial lives. We'll help identify current your strengths and weaknesses, clarify and refine your long-term goals, and prioritize decisions to improve your financial well-being now and later. Reach out today to take the first step.