Perhaps some of the best investing advice just four months removed from the presidential election is to forget there is even an election happening at all.
That’s the good word from veteran market strategist Mark Matson of Matson Money, a registered investment advisory firm with about $8.8 billion under management.
“Investors need to stay focused on the next 10 to 20 years, not the next 10 to 20 minutes,” Matson said on Yahoo Finance’s The First Trade. “As a matter of fact, all the the noble and predictable information about the future is factored in today [into stocks]. Therefore, only random and unpredictable information will change the market going forward. What I can say is we have done extensive studies — if it’s a Democratic or Republican president or if it’s a Democratic or Republican House or Senate — and over the last 70 years I can’t find any correlation between what party’s in office or not.”
The raw numbers underscore Matson’s point.
According to the most recent data crunched by Investopedia, the average annual return on the S&P 500 (^GSPC) from 1926 to 2018 is a rock solid 10% to 11%. Adjusted for inflation, the average return on stocks has been 7%. There were 16 different presidents during that span, all with different approaches to governing based on their political affiliation and personal philosophies. And obviously, control of the House and Senate changed frequently over that stretch, too.
Yet, stocks have done very well based on more than 90 years of data.
Adds Matson, “Investors would be better off instead of trying to play chicken with the election, to just keep their investments long-term and not worry about what happens in the short-term. It’s the hardest thing to do, but sitting on your hands and staying long-term focused pays the highest dividends.”
That’s not to say an investor should completely ignore changes in the White House and Congress, especially now with valuations on stocks approaching dot.com bubble levels.
Over a two-year period, the market does better following a Republican win (+8.3%) than a Democratic presidential win (+5.8%), according to numbers analyzed by Fidelity that go back to 1789. When Republicans sweep the House and Senate, the two-year average forward return for stocks is an impressive 12.2%. But when Democrats sweep, stocks return 3.4% over a two-year span.
An argument could be made the stock market is betting on a re-election of Trump, which on paper would mean extended tax cuts, among other likely business-friendly measures. Wall Street strategists Yahoo Finance has talked with highlight the risk to stocks amid proposals by Joe Biden to raise corporate taxes should he become president.
With all this uncertainty on the election, maybe Matson has a point — invest for the year 2040 and don’t look at your trading account until then.