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Here’s Why The Election Won’t Really Affect Your Portfolio

Monday, October 31, 2016 4:09
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american flagConventional wisdom would state that the winner of November’s election would affect the stock market dramatically — that one candidate would be better for stocks than the other.

But history shows that simply isn’t the case. A recent study looked back at more than a century and a half of stock market returns, and found very little difference between the two major parties in terms of stock market returns. From Bloomberg:

Variations in the market’s performance under Democratic and Republican administrations, measured by the average of yearly returns over more than 160 years, are so small as to be negligible, said Vanguard senior investment strategist Jonathan Lemco, a former professor of political science at Johns Hopkins University.

Lemco looked at market data from 1853 to now and found this:


In the long term, your portfolio probably won’t care who becomes president. In the short term, however, we could see some major volatility. But those market fluctuations tend to smooth out and wind up with pretty decent returns in the first year of a new presidency:

The market has risen an average of 6 percent during the first year of a new presidential term, according to Stephen Suttmeier, a technical research analyst at BofA Merrill Lynch Global Research.

The bond markets don’t suffer too much from an election year, either, according to data going back to 1972. So while many investors, pundits, and analysts will continue to speculate on which candidate will be better or worse for stocks, the facts show that the markets generally don’t care.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) closed at $181.36 on Friday, down $0.17 (-0.09%). Year-to-date, the only ETF that tracks the DJIA has risen 4.24%.


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