Oct. 2016 – Maintaining Perspective

In all the mayhem of the election, it can be easy for investors to get lost in the moment and lose long-term perspective. This campaign has been especially uninspiring for the electorate at large. If you listened to the candidates talk, you might think our economy was in turmoil. Trump vows to renegotiate trade deals that are “killing us” (his words). Clinton plans to enact a jobs bill in her first 100 days. Either way, you’d think that the economy is in dire straits.

Overall economic growth has been sluggish but positive. However, in terms of long-term investment returns, this election is likely to be nothing more than a blip on the radar, given the resilience of the American economy.
Since 1926, average returns for the S&P 500 during election years has been 11.2%. Returns in the year following an election have averaged 9.3%. The average calendar year return over those 90 years has been 12.0%. Those election years include some terrible returns, such as 2008 when the market fell 37%, hardly a result of the election.

Having an election does not mean that investors need to run and hide. Nor does the result of the election have any obvious impact on returns. From 1926 through 2015, calendar year returns on the S&P 500 have averaged 11.8% for Republican presidents and 12.1% for Democratic presidents. There’s not enough data to prove any meaningful difference in stock returns based on the party of the president. What is clear is that maintaining a long-term focus was prudent under all circumstances.

Many investors hear the political rhetoric and are concerned about what the future holds. Meanwhile, a $25,000 home bought in 1970 is likely worth about $250,000 today, according to national average home prices. $10,000 worth of gold coins bought in 1970 is worth about $375,000 today. A $10,500 investment in U.S. stocks in 1970 is worth about $1 million today.

Investors who focus on the negativity of the campaign could easily get caught up in making rash and potentially detrimental financial decisions. Recent experience of the Brexit vote can be instructive. Investors who hoped to benefit by selling investments after the surprise vote may have missed the rally that started only days later.
Things have happened before, and the American economy has always come out ahead. Any individual investment may or may not fare well over the next year or two, but history should give us some confidence in financial markets over the long term.

Also In this Issue of Investment Guide

Quarterly Review of Capital Markets
Is Buffett’s Portfolio Relevant
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked by Yield
Recommended Investment Vehicles