Are you wondering what is going to happen now that this year’s presidential election is over? Indeed, this has definitely been an interesting year for the stock market. The market has been volatile.
The S&P 500 has only finished negative in four presidential election years since the start of the S&P 500 in 1928. The four election years where the stock market finished in the red includes 1932, 1940, 2000, and 2008. The average return for the S&P 500 in presidential election years when a Republican is elected has been 15.6%. *The Standard & Poor’s 500 Index (“S&P 500”) is an unmanaged, market capitalization weighted index of 500 widely held stocks, with dividends reinvested, and is often used as a benchmark for the U.S. stock market. Please note that investors cannot invest directly in an index. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. *https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=3b1ae39a-1a43-4299-97e9-bb7dac5eb9cd
The benefit of the volatility and the recent sell-off in the stock market is that it creates a great buying opportunity. Most investors want smooth sailing for their investments. However, every year the market has highs and lows throughout. https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=8e54bb9d-fc75-4128-a39b-8d5510e8c83e
If you miss one of the market’s best days that affects your overall return.
“If an investor stayed fully invested in the S&P 500 from 1993 to 2013, he/she would have had a 9.2% annualized return…Missing [critical one day upswings] does so much damage because those gains aren’t able to compound during the rest of the holding period” since they were missed. Sam Ro, Business Insider *The Standard & Poor’s 500 Index (“S&P 500”) is an unmanaged, market capitalization weighted index of 500 widely held stocks, with dividends reinvested, and is often used as a benchmark for the U.S. stock market. Please note that investors cannot invest directly in an index. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
There are three main keys to investing in the stock market. First, you should buy low and sell high. Sometimes in order to accomplish that end, you have to buy when fear is high and everyone else is pulling out of the market.
Second, consider having a diversified portfolio, which can help during market down turns. Having a diversified portfolio may include equities, bonds, REITs, alternative investments, etc. so that not everything in your portfolio is correlated to the stock market.
Third, it’s important to stay invested and to do so, it may mean that you just look at your statements on a quarterly basis instead of monthly or watching your account on a daily basis, so that you’re not tempted to sell everything when the market is going through a temporary dip.
Finally, there are some industries that are poised to do well in a majority Republican political environment are Aerospace/Defense and Infrastructure related companies. Trump has said that he planned to at least double the amount spent on infrastructure than Hillary Clinton had planned and she had planned for a significant sum. Pharmaceutical and health care stocks are also likely to improve now that the threat of additional regulation or expansion of Obamacare seems unlikely. In conclusion, I recommend having a diversified portfolio, staying invested, and buying when fear and/or uncertainty is high.