Stay Invested Regardless of Politics

Over the long term, investing is fundamentally an act of optimism, believing in the power of investments in a U.S. and global market to grow. Market performance is mainly driven by corporate earnings and the business cycle. There have been, and will always be, market ups and downs, but let your time horizon help drive your confidence – and your portfolio allocation.

One of the largest sources of risk to achieving long-term investment goals is not staying invested in the short term. For example, when investors move to cash during a down market or because of an election result, they may miss out on the eventual rebound and potential growth. No investor has shown that they can consistently “time the market.” And being in-or-out of the market due to the result of an election (going back to the 1960s) hasn’t helped investors grow or manage wealth.

There’s always a reason to sell, but the investor is often to blame and not the markets for poor results.

The chart below shows what happened to $10,000 invested in a hypothetical portfolio of U.S. large-cap stocks on Jan. 1, 1961, under three different scenarios.

• If the investor was only invested when a Republican was president, the original $10,000 grew to $102,293 by 2023.

• If the investor was only invested when a Democrat was president, their $10,000 investment grew to $500,476 by 2023.

• And if the investor stayed invested the entire time, their $10,000 original investment grew to over $5 million by 2023.

This is not to say one political party is “better” for the markets than the other. Rather, leaving money invested, to compound over time, can lead to a significantly better outcome.

Source: Schwab Center for Financial Research