How to Talk With Retirement Clients About the Presidential Election

“One effective strategy is to look at past results to gain a better understanding of how election years, the president, and changes in who controls Congress have historically affected financial markets,” Rizzuto proposed.

What History Shows Us

As Rizzuto detailed in one recent article, people often worry about a big drop in the market should their preferred presidential or congressional candidates lose power to the opposing party. Yet, the average return of the S&P 500 between 1937 and 2022 shows that election-year returns have, on average, been positive and accretive to portfolios.

More specifically, Rizzuto pointed out, the average return from 1937 to 2022 of the S&P 500 was 11.9%. In non-election years, it was 12.5%, and in election years, it was 9.9%.

“So, while election-year returns have historically been somewhat lower than non-election-year returns, they are still additive,” Rizzuto said. “And as we know, trying to time the market to try to make up for this difference would likely do more harm than good.”

Also key to note is that, just as with the historical market returns in election and non-election years, there are differences in how markets have performed based on party control.

“Over the long term, however, the markets have done well regardless of who is president and which party controls Congress,” Rizzuto emphasized. “One noteworthy wrinkle is that if the same party retains control of the Oval Office, the market return has historically been 11.8%, while in election years when the presidency changes parties, the market has averaged a 7.8% gain.”

In Rizzuto’s view, this phenomenon may have more to do with the markets and business cycles presidents inherit, rather than any specific policy choices on the part of incumbents or newly elected presidents. That is, most first-term presidents have been inaugurated amid varying degrees of economic stress.

The Bottom Line

The big conclusion to share with clients is that, regardless of which political parties they are affiliated with, they should vote for long-term planning.

“The financial goals we are investing for today have time horizons that may last 10, 20, 30, maybe even 40 years and could span several presidencies,” he said. “The historical data shows us that, over the long term, financial markets don’t necessarily care who the president is or who controls Congress.”

Credit: Bloomberg