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Elect to Leave Your Portfolio Alone

By Weston Wellington, Vice President. Nov 4th, 2022

On November 8, US voters will cast their ballots for all 435 seats in the House of Representatives and 35 seats in the Senate. Many investors are concerned with the effect of election results. Do past results suggest a useful strategy to deal with election-year uncertainty?

The answer is yes.

For the 96-year period ending in 2021, the S&P 500 Index (with dividends reinvested) posted an average return of 12.33% for all calendar years and results were negative in roughly one out of four. During that time there were 24 midterm congressional elections. The average return for the 12-month period following the election was significantly higher at 19.58%, with only one negative result.

Do these numbers suggest investors should load up on stocks just prior to every midterm election? Not so fast. Investors should not make too much of these results—stock returns vary so much from one year to the next that a statistics professor would likely frown on drawing conclusions from only 24 observations. But if investors are looking for reasons to fret over election returns, there is little evidence that changes in political leadership are useful in making portfolio decisions.

These results should come as no surprise. Voters express their opinion at the midterm ballot box once every four years. Consumers express their opinion at the cash register every day by deciding which products and services to buy. Many of us have firmly held opinions regarding politics and policy, but we don’t invest in 535 men and women gathering in Washington D.C.

We invest in companies located in Moline, Illinois (Deere & Co.), Los Gatos, California (Netflix), and Bentonville, Arkansas (Walmart). Government policies may have an effect—either positive or negative—on some firms, but the men and women running these firms face challenges and opportunities from dozens of factors. Jim Farley has to juggle resources at Ford Motor to maintain the F-150 pickup truck as the best-selling vehicle in the country while investing in new technology to power models with electric motors. Bob Chapek has to decide how much of Disney shareholders’ money should be spent on new cruise ships and how much on movies. Vicki Hollub of Occidental Petroleum must determine if it’s best to use healthy cash flow this year to pay down its substantial debt or ramp up exploration efforts.

Are these CEOs concerned with election results? Quite possibly. But we suspect they are far more concerned with a host of issues they face while directing organizations with operations and employees in multiple countries around the world. The same goes for the thousands of other companies, large and small, across the US that are looking for ways to maximize profits for shareholders.

Bottom line:

Predicting election outcomes is difficult, and predicting how securities markets will react to those outcomes is harder still.

Source: Dimensional Fund Advisors


Named securities may be held in accounts managed by Dimensional and should not be considered a recommendation to buy or sell a particular security. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein. This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing, or other such legal requirements within the jurisdiction. “Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd. and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

Risks Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.

I'm happy to talk this subject over with you on a complimentary call. As a fee-only fiduciary advisor, I never receive commissions and therefore am unbiased on this topic.

Disclaimer: Past performance is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. Investments in securities involve the risk of loss. Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.

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