The Politics of Investing

One of the common topics that investors bring up is the relationship between politics and the stock market. It is true that each of the three branches of the US government has varying ability to impact the economy and even global growth. However, in examining the evidence, the correlation between the stock market and the political landscape is much smaller than most people realize.

It’s important to understand that the equity market has a tremendously positive historical record. It has averaged approximately 10% return each year for more than a 100-year period. While there are short downperiods here and there, the timeline as a whole has been overwhelmingly positive. Before taxes, $10,000 invested in the market 50 years ago is worth about $3,000,000 at the end of 2023. So, the real question is, can political happenings adversely affect future returns?

Let’s examine a couple of charts:

In our first chart, the most obvious inference is that the sitting president has little effect on the stock market’s long-term performance. Every president has experienced dips and spikes, with the ultimate outcome of growth in market valuation over time.

Not shockingly, the same basic conclusions can be drawn when the comparison is made regarding which party has the majority in Congress:

At Legacy, we acknowledge the extreme importance of our country’s leaders, their decision-making, and the wide-reaching effects of those decisions on the country and the world. We simply believe that ultimate investment success is relatively unrelated to politics. Focusing on the controllables like investment allocation, cash flow planning, and tax minimization are all far more relevant and practical. We commonly ask, “How much do you think the value of Apple or Google changes based on who is in office?”.

Polarizing issues can be difficult to approach. Fortunately, a good financial plan is quite unaffected by such issues. Legacy works to ensure that each plan is tailored and unique to our clients and their individual goals. Our aim is to impact clients and the larger community by providing sound investment advice and financial planning that enriches lives.

As always, we stand at the ready to serve you in your financial goals.

The Legacy Financial Group

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