Election Results and the Market: Protecting Your Nest Egg
Friday, October 19, 2012 • 3:46pm
With the upcoming presidential election less than a month away, people are wondering who they will vote for — President Obama or Mitt Romney? But the question on the minds of investors is — Who will win and how will the election results affect the markets?
Many believe the presidential election affects stock market returns while the reality is that throughout history markets have both thrived and fallen under both the Republican and the Democratic parties.
Historically, the markets have not predicted the outcome of an election. Franklin D. Roosevelt was re-elected in a landslide victory in 1940, despite losses in the S&P 500 in the third and fourth years of his term. Harry Truman (1948) and Richard Nixon (1972) were also re-elected amid uninspiring stock market results. Al Gore fell short of securing the presidency in 2000, despite the powerful eight-year stock market gain during his party’s reign in the White House.
Earlier this year a CNN Money survey was conducted showing that 70 percent of investment strategists and money managers believed a Republican president would be good for the stock market. Yet other indicators demonstrated that stocks gain more when a Democrat is president. Thus, determining how Wall Street’s political preferences influence the market is still highly debatable.
Investing based on politics and election cycles has its risks and past performance is no guarantee of future results. Investors cannot predict the forces that will affect a president’s term and how Congress will respond to the challenges it faces. The best advice about the election is to vote for the candidate you believe will serve America best.
So what’s the best investment advice during an election year or otherwise?
“Develop a long-term strategy that meets your personal and individual financial goals and one that provides consistent and solid growth,” states Walter Pardo, President WFP Tax Partners, based in Basking Ridge, NJ. “ Trying to time the market in any way whether it be during an election year or otherwise does not bring the best results and in the long run can be very costly. Instead, develop a strategy that balances the highs and lows that can affect a portfolio’s growth whether it be an election, recession or other factors.”
In addition, how consumers feel more confident or not about the economy and prospects for growth, jobs, and the housing market can also determine the direction of the markets on any given day.
Currently, many financial experts still see upward movement in the markets regardless of the results of the presidential election for a couple of reasons. America makes up one-quarter of the global economic engine and is expected to outpace the economic growth of its more advanced peers the remainder of this year and into 2013, held back mainly by the uncertainties in the euro zone.
Walter Pardo is the founder and Managing Partner, WFP TAX PARTNERS, LLC, a New Jersey based financial services firm helping investors throughout the greater New York City area. With years of experience in the financial industry, Walter's success in business can be attributed to his unique talent for bringing together complex investing issues and solid, down-to-earth values that people can grasp. As a public speaker, Walter has shared his message with any number of people wherever he gathers an audience. His direct approach, passion, and enthusiasm makes him both a compelling speaker and a fierce proponent of solid financial planning.