Investing Based on Politics is a Bad Idea for Your Retirement Portfolio

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Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®
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Photo Credit: Element5 Digital, Unsplash

As the 2024 presidential election approaches, Americans prepare to vote in what polls forecast to be a tight race. Like many investors, you may wonder how the election outcome could affect financial markets and whether you should change your investment strategy. While elected leaders can influence economic growth by enacting laws and regulations, data suggests that who occupies the White House has little to no impact on investment performance. Fundamental factors like corporate earnings growth and valuations impact the stock market far more than political headlines. Politicians make many promises during election years, but these often go unfulfilled because of the government’s system of checks and balances. Moreover, the economic outcomes of policies are less predictable than officials think, with the economy more influenced by factors like job growth, interest rates, and inflation.

The charts below illustrate the financial impact of allowing political beliefs to influence investment decisions. The chart on the left graphs the S&P 500 Index, which started with Dwight Eisenhower’s presidency in 1953 and is color-coded by political party. The graph on the right compares the investment performance of portfolio decisions made based on political affiliation. If an investor only invested in the stock market when a Republican was President, $10,000 would have grown into $83k today, excluding dividends. Investing only when a Democrat was President would have returned $254k. While the gap may seem wide, if an investor ignored the president’s political party and remained invested, the $10,000 would have grown to over $2.1 million.

Political views can stir strong emotions, but making investment choices based on those feelings can lead to poor portfolio decisions. Instead, it’s better to focus on time-tested investment principles and avoid letting politics influence your long-term strategy. The US economy’s success, growth, and resiliency don’t change with each new election, nor should your investment strategy. Expressing political opinions at the ballot box is best, not in your portfolio.

Growth of the S&P 500 Shaded by Political Party

S&P 500 Index returns by political party

Growth of $10,000 Invested in the S&P 500 Since 1953

S&P 500 Growth
 

Important Disclosures
This material is provided for general and educational purposes only and is not investment advice. Your investments should correspond to your financial needs, goals, and risk tolerance. Please consult an investment professional before making any investment or financial decisions or purchasing any financial, securities, or investment-related service or product, including any investment product or service described in these materials.

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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