Let your political passions drive you to the polls, not out of the stock market, says Dr. C. Thomas Howard, CEO and director of research for AthenaInvest Inc. in Denver, Colo.
Investors fear the impact the presidential election will have on the stock market, when, in fact, it will have little impact in the long run, says Howard.
AthenaInvest is a sub-manager for advisors, ETFs and hedge funds that has $300 million in assets under management. The firm was founded five years ago by Howard, professor emeritus at the Reiman School of Finance, Daniels College of Business, University of Denver.
Investors who are pulling out of the stock market because they fear what the election will do to the market are making a mistake, says Howard. Passions about the upcoming election should not influence investment decisions.
“It is best not to deviate from a well-thought-out, long-term investment strategy,” he adds. “While the election itself is stirring up a lot of emotion, no matter how riled up you are about one or both of the main candidates, as an investor, it pays to take a more dispassionate view about your portfolio.”
Howard’s research shows that the markets, despite election outcomes and the various administrations, are resilient over the long term. For the 16 election cycles between 1951 and 2015, with the first election year being 1952, the average annual S&P 500 market return was nearly 10 percent.
“The surprising year is the third year after the election, or the year before the next election, which saw a return twice that of the other three, averaging nearly 20 percent,” he says.
“Some suggest this spectacular performance in the year before the election is a result of monetary and fiscal stimulus applied in order to help the current party retain the White House. This suspected maneuver may also contribute to lower returns in the year following the election,” Howard says.
“While we would all like to invest in the year with the highest return, we have to decide what to do in the other three years. With the other three years averaging a return of nearly 10 percent historically and given available alternatives, it makes sense to remain fully invested throughout the election cycle,” he explains.
“At AthenaInvest, we only trade on measurable signals about the economy and market, and in this case we do not see any signals. The economy is the underlying driver of the market and it has hit a soft spot right now, but earnings forecasts are positive. We see no real concerns about the economy right now,” Howard concludes.