Another four years have flown by, and here we are again, at the start of a new presidential term in office.
The U.S. president is often considered one of the world’s most powerful figures, wielding substantial influence over the world’s largest economy and one of its most formidable militaries, albeit limited by a system of checks and balances through Congress. Perhaps it’s understandable that the media, politicians, celebrities and business owners alike wish to make their voices heard during this time.
It has been a roller coaster, what with President Biden’s withdrawal from the race, an assassination attempt, Elon Musk coming into bat for Trump and Taylor Swift for Harris, and the usual fierce partisanship from both sides.
For investors, it’s natural at times of political uncertainty to wonder whether you ought to act, perhaps altering your portfolio, or moving money into cash deposits until things ‘settle down’. Some choose to invest this way, mostly at their peril, as very few managers possess the ability to consistently predict the impact of such events[1].
A better strategy, as is adopted in your portfolio, is to outsource this guesswork to the market itself, relying on the millions of daily participants to come up with their expectations and reflect them in prices. Thankfully, given both Democrats and Republicans support capitalism and believe in personal freedom and property rights, this strategy is a tried and tested approach to investing.
The chart below shows the Global equity market return over the last century or so, where the colours represent whether the sitting US president was Republican (red) or Democratic (blue) at the time. There is little to draw from the red and blue sections, both parties have resided over some fantastic periods, and some not-so-fantastic ones. However, the ability of capitalism to create wealth despite the ups and downs is evident, with $1 invested in 1926 becoming nearly $10,000 by 2024.
Democratic (blue) and Republican (red) Presidents and equity market returns
Source: Dimensional Returns. Index: Albion World Stock Market Index[2]. Date: 07/26-09/24. Returns in USD.
The challenge is knowing – without the benefit of hindsight – how the market will react. Will the Trump victory be good or bad for markets? Answering these questions is akin to guesswork, despite what some of the financial press might have us believe.
Whilst guessing against randomness is impossible, taking on the known risk that equity returns are far less certain than holding cash rewards investors who ignore this short-term noise and focus on the long-term. The choice of the US President is important to some, but to the long-term investor, it is largely irrelevant.
Past performance can’t guarantee what investments will do in the future. The value of a portfolio can go down as well as up, so there’s a chance you’d get back less than you put in.
Investment into any portfolio should be regarded as for the medium to long-term.
This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action.
[1] Albion GAMETM 24.5 – 90% of US equity fund managers were beaten by the MSCI USA IMI Index 20Y to Jun-24.
