Ric Edelman put out a survey before the presidential election that included the question, “Do you think your candidate will win?” The response was a resounding yes.
Edelman, the co-founder of Edelman Financial Engines, said during a recent webinar, "The Impact of the Elections on Your Investments," that 97% of American voters were clearly optimistic that their candidate would win the election. He noted that UBS did a similar poll in which 46% of American investors said they planned to adjust their portfolio after the election, depending on who won.
“That’s a big problem. Everybody was confident that their candidate would win, but if your candidate lost, you plan to change your investment strategy. That is a big mistake,” Edelman said. “Don’t let political views interfere with sound investments.”
Edelman said his firm did research to determine how the stock market performed when a Democrat instead of a Republican was in the White House. The research included every president from 1948 to 2019. For the Democrats—Presidents Truman, Kennedy, Johnson, Carter, Clinton and Obama, the average annual return for the S&P 500 was 10% per year, which is the average annual return of the stock market since 1926, Edelman said.
On the Republican side with Presidents Eisenhower, Nixon, Ford, Reagan, Bush, Bush and Trump, the average annual return for the S&P 500 was 7.7% per year.
Those statistics, Edelman said, surprised people because most assume that Republican presidents are more focused on the economy and therefore think that the stock market will do better during a Republican administration. “Well, as this evidence shows, that isn’t the case,” he said.
So if you were investing during Democratic presidencies since 1949, you would have made more than if you had invested during Republican presidencies, Edelman said, noting that a $100,000 investment since 1949 when a Democrat was in the White House would have grown to $2.9 million by the end of last year, whereas that $100,000 invested with a Republican in the White House would have grown to $717,000.
Moreover, Edelman said if you had invested that $100,000 the entire time, regardless of which party occupied the White House, you would have ended the period with $21.1 million. “Clearly, the message is obvious. You need to invest throughout your career, throughout your adult life, regardless of which political party is in office,” he said.
Edelman also analyzed the average annual stock market returns from the standpoint of which political party was controlling the U.S. House of Representatives and the U.S. Senate. He noted that in 28 of the years between 1948 and 2019, one political party was in control of all three chambers of government, eight years of which Republicans controlled all three and 20 years of which Democrats controlled all three.
The annual average return for the stock market in the eight years that Republicans dominated the White House, House and Senate chambers was 15.9%, Edelman said. In the 20 years that the Democrats dominated the chambers, the average annual return was 14.5%.
“Very similar and very exciting. So the answer is very clear. If you are trying to decide whether or not money is red or blue, you are making a mistake. Money isn’t red or blue. Money is green.”
The bottom line when investing should be based on your long-term goal, Edelman said. “The more you allow your political views to color your investment strategy, the more likely you will make a bad financial decision,” he said, adding that unfortunately too many people base their investment decisions on which party is in control of the White House.