It is only human to wonder what will happen when a new president is elected. Well, there is certainly no shortage of opinions, but I think what investors need is not another oppinion, but true long-term perspective. That is why I want to share a paper from Dimensional Fund Advisors about presidential elections and the impact of politics on the stock market that puts this issue in perspective better than I have ever seen it done before.
You can read the paper by clicking here: Presidential Elections and the Stock Market.pdf
Trying to predict what the stock or bond markets will do in the near-term is pretty much impossible. When I studied every election month since 1926, I found what I expected to find, returns follow a random pattern that fits well within what we would expect. That is, there is no real “pattern”. But over the longer term we can certainly recognize a distinct pattern – the market goes up over the long haul, regardless of who is in office.
You may recall that during the last couple of elections we were warned by the pundits that if Bill Clinton or Barack Obama were to be elected, the economy would be a disaster, interest rates would spike, and the stock market would plummet. None of those fears materialized, and the stock market experienced fantastic returns under these presidents. I think you will find that if you make your portfolio decisions based on who is in the White House, you are likely to find yourself with a failing strategy. I have seen that happen time and time again.