Every four years, the U.S. presidential election can have a major impact on policy, laws, and foreign relations. But how do presidential elections affect the stock market? And how does that affect you as an investor?

Presidential elections can make investors nervous and even lead some to consider switching their portfolio to safer investments. At first glance, this reaction seems rational. The President can make significant changes that affect the business environment, such as tax rates, trade deals, regulations, and stimulus spending.

However, history tells a different story. The long-term trend of the stock market has been up and to the right no matter who the President is:

As you can see, there is no clear connection between the party of the President and the stock market performance.

This is why it’s important to separate personal and political feelings from financial plans and investments. Contrary to popular belief, Presidents often have far less influence on the markets than most people think. Policy decisions usually take time to trickle down and affect the broader economy. And the economy and stock market do not consistently move in lockstep.

Bottom Line
The current president is just one of numerous variables that affect the markets. For instance, the Dot.com bubble burst in 2001 and the 2008 financial crisis greatly impacted the stock market, events that were largely beyond the control of Presidents Bush and President Obama.

Rather than basing your investment decisions solely on whether a Republican or Democrat is in office, adopt a long-term investment strategy that remains consistent regardless of the party in power. By doing so, you’ll be better positioned for any long term growth in the stock market.

George Maroudas

George Maroudas

Twitter @ChicagoAdvisor

Disclaimers / Sources

Charts are from Charles Schwab

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly