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The outcome of the US election is now clear, and Donald Trump has been elected as the next US president. As you already know, the US elections are a global event with an impact that reaches far beyond their borders. Hence, the question that most have is, how does that impact me, and specifically, how does that impact my well-being and wealth?
Let’s Dive into Equities & Company Performance
Much speculation goes into which US political party is more favorable for stock performance. However, we have enough data to suggest that neither political party moves the needle in equity markets. Take a look at the two charts below:
- Each blue bar shows the stock market performance over four years while a Democrat was in office, and each red bar shows when a Republican was in office.
- The following chart shows three lines. The yellow line is for an investor who invested $1,000 only when a Republican is in office, and the green is the same only when a Democrat is in office. The blue line shows the impact of compounding of an investor who invested $1,000 and never sold regardless of the political party in power:
Elections do impact sectors and specific industries, however. Each campaign will take a different approach to the economy in key sectors (e.g., Energy policy).
Hence, we recommend a diversified approach when investing in equities. It's important to remember to invest in the entire production market of all goods and services rather than making bets. Data strongly suggests that most professional investors cannot beat the overall market performance, and when some do, they are highly unlikely to repeat it.
Last note on why companies do well regardless of the incumbent party: is that what matters when it comes to equities is two things:
- Profitability & Earnings: Are the companies making money today, on average, able to continue making money by producing goods & services? If some companies fail at doing so, are they replaced with new companies that take their place in similar or altogether new industries? The answer is most usually yes.
- Earnings Growth: Is the average company growing their bottom line on an annual basis? History strongly suggests they do so consistently through technological innovation and general economic growth.
Conclusion
Despite swings in policy and leadership, the best investors have stayed the course, continually investing across both Republican and Democratic administrations. Warren Buffet famously once said, “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic... Yet the Dow rose from 66 to 11,497.” This resilience highlights the strength of a long-term, diversified investment strategy that can weather any political landscape.
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