Will the elec­tion af­fect in­vest­ments?

The Covington News - - 10 year members 15 year member business -

Now that both po­lit­i­cal par­ties have held their re­spec­tive con­ven­tions, the cam­paign sea­son shifts into high gear. As a ci­ti­zen, you’ll want to hear how the candidates plan to ad­dress is­sues of im­por­tance to you. But as an in­vestor, you might be par­tic­u­larly in­ter­ested in how the elec­tion re­sults can af­fect your in­vest­ments. Based on what hap­pens on Nov. 4, should you make any changes to your port­fo­lio?

To an­swer that ques­tion, you may find it use­ful to re­view the his­tory of the fi­nan­cial mar­kets un­der dif­fer­ent po­lit­i­cal sce­nar­ios, ac­cord­ing to Ned Davis Re­search.

Since 1901, the Dow Jones In­dus­trial Av­er­age has shown an av­er­age an­nu­al­ized re­turn of about 12 per­cent un­der Demo­cratic pres­i­dents, com­pared to about 8 per­cent un­der Repub­li­cans. When Democrats have con­trolled Congress, the Dow’s av­er­age an­nu­al­ized re­turn has been about 11 per­cent, com­pared to about 8 per­cent when the Repub­li­cans were in con­trol.

Since 1925, long-term gov­ern­ment bonds have re­turned more than 7 per­cent un­der Repub­li­can pres­i­dents, com­pared to about 3.4 per­cent un­der Democrats. When Repub­li­cans have con­trolled Con- gress, the bond mar­ket also fared bet­ter than when Democrats were in charge, though the dif­fer­ence isn’t as pro­nounced as in the com­par­i­son be­tween pres­i­dents of dif­fer­ent par­ties.

Bu t while it’s in­ter­est­ing to study the past, it’s not nec­es­sar­ily in­struc­tive about the fu­ture. It’s true that by chang­ing our tax laws, gov­ern­ment spending and in­dus­try reg­u­la­tions, any given pres­i­dent and Congress can have an im­pact on eco­nomic growth, jobs, iner­est rates and inflation — and all th­ese fac­tors, in turn, can af­fect the fi­nan­cial mar­kets. Still, it’s im­pos­si­ble to pre­dict just how th­ese forces will in­flu­ence the in­vest­ment world. Po­lit­i­cal candidates of­ten make prom­ises that never turn into re­al­ity, and even if they do, they can have un­in­tended con­se­quences.

Even more im­por­tantly, how­ever, is the fact that the freemar­ket forces of our cap­i­tal­is­tic sys­tem are likely more pow­er­ful than po­lit­i­cal forces in de­ter­min­ing the ul­ti­mate per­for­mance of in­vest­ments. As a coun­try, we have ex­pe­ri­enced many po­lit­i­cal changes and up­heavals, but, over time, our econ­omy has al­ways proven re­silient enough to pro­vide op­por­tu­ni­ties for those peo­ple with the faith to in­vest for the fu­ture.

Here’s the bot­tom line: No mat­ter who wins the pres­i­dency in Novem­ber, and no mat­ter which party con­trols Congress, you don’t need to change your in­vest­ment style or re­vamp your port­fo­lio.

So, when it’s time to cast your bal­lot, sup­port the can­di­date who best ad­vo­cates your con­cerns on a range of is­sues. But when it comes to your port­fo­lio, make sure to “vote” for in­vest­ment strate­gies, such as buy­ing qual­ity stocks and bonds, hold­ing them for the long term and build­ing an in­vest­ment mix based on your goals and risk tol­er­ance.

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