A review of U.S. presidential elections Elections come and go. Results last a lifetime.
A review of U.S. presidential elections
Elections come and go. Results last a lifetime.
There have always been tumultuous events.
The current economic and political challenges may seem unprecedented, but a look back
shows that controversy and uncertainty have surrounded every campaign.
CLOSED
Labor market struggles
Market declines and recessions
CLOSED
Businesses going bankrupt
CLOSED
Weather-related calamities
CLOSED
Overseas conflict and war
CLOSED
Civil unrest and protest
1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Jimmy Carter vs.
Gerald Ford
Ronald Reagan vs.
Jimmy Carter
Ronald Reagan vs.
Walter Mondale
George H.W. Bush
vs. Michael Dukakis
Bill Clinton vs.
George H.W. Bush
Bill Clinton vs.
Bob Dole
George W. Bush vs.
Al Gore
George W. Bush vs.
John Kerry
Barack Obama vs.
John McCain
Barack Obama vs.
Mitt Romney
Donald Trumpvs.
Hillary Clinton
New York City threatens
bankruptcy
Economy mired in recession
Iran hostage crisis drags on
Olympic boycott underscores
Cold War divide
Budget deficits rising rapidly
Stock market slides over 30%
in less than four months
Savings and loan crisis
reaches apex
Iran-Contra indictments
Los Angeles riots highlight racial
tension
Pending NAFTA ratification
creates anxiety
19 American servicemen
killed in Saudi Arabia bombing
UN arms inspectors repeatedly
thwarted in Iraq
Tech bubble bursts; stock
markets plummet
Attack on USS Cole heightens
terrorism concerns
Oil prices soar
Ongoing wars in Iraq and
Afghanistan
Subprime mortgage crisis
Lehman Brothers collapse; world
markets fall
High-stakes negotiations lead to a deal to avert the “fiscal cliff”
Superstorm Sandy kills 268 people and causes $68
billion in damage
Rise of populism affects elections around the world
The U.K. votes to leave the European
Union
Set your sights on the long term Investor doubts may seem especially prevalent during presidential election years when campaigns spotlight the country’s challenges. Yet even with election year rhetoric amplifying the negative, it’s important to focus on your vision for the future. Keep in mind the following:
• Successful long-term investors stay the course and rely on time rather than timing.
• Investment success has depended more on the strength and resilience of the American economy than on which candidate or party holds office.
• The experience and time-tested process of your investment manager can be an important contributor to your long-term investment success.
“ The only limit to
our realization of
tomorrow will be our
doubts of today.”
— Franklin D. Roosevelt
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
1936 1940 1944 1948 1952 1956 1960 1964 1968 1972
Franklin D. Roosevelt
vs. Alf Landon
Franklin D. Roosevelt
vs. Wendell Willkie
Franklin D. Roosevelt
vs. Thomas Dewey
Harry Truman vs.
Thomas Dewey
Dwight Eisenhower
vs. Adlai Stevenson
Dwight Eisenhower
vs. Adlai Stevenson
John F. Kennedy vs.
Richard Nixon
Lyndon Johnson vs.
Barry Goldwater
Richard Nixon vs.
Hubert Humphrey
Richard Nixon vs.
George McGovern
U.S. remains in grip of
Depression
Nazi rise troubles Europe
Isolationism vs. engagement
hotly debated
Germany menaces Europe;
France falls
FDR’s health in question
Potential Post-War impact of
New Deal debated
Civil rights tension boils over at convention
Berlin blockade accelerates Cold War
U.S. detonates first hydrogen
bomb
Attempts at Korean War
truce fail
Mideast trouble as Egypt seizes
Suez Canal
Soviets invade Hungary
Cuba nationalizes U.S. assets
American U-2 spy plane shot down in Soviet
airspace
Civil Rights Act passes after
lengthy filibuster
Gulf of Tonkin signals Vietnam
involvement
Vietnam protests and civil rights
issues roil conventions
RFK and Martin Luther King Jr. assassinated
Watergate scandal surfaces
Vietnam War drags on
Democrat
Republican
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20181935 1936 1937 1938 1939 1940 1941 1942 19431934Year endedDec. 31 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 20001998 200620052004200320022001
8,000
10,000
100,000
80,000
60,000
40,000
20,000
200,000
400,000
600,000
800,000
1,000,000
10,000,000
100,000,000
$200,000,000
2,000,000
4,000,000
6,000,000
8,000,000
20,000,000
40,000,000
60,000,000
80,000,000
Consumer Price Index (inflation)$190,328Average annualreturn: 3.5%
Stock market with dividends reinvested$57,809,008Average annualreturn: 10.7%
Stock market with dividends excluded$2,482,030Average annualreturn: 6.7%
Reco
rd-se
tting
m
arke
t dec
line
Depr
essi
on Civi
l war
in S
pain
Rece
ssio
n
Econ
omy
still
stru
gglin
g
War
clou
ds g
athe
r
War
in E
urop
e
Fran
ce fa
lls
Pear
l Har
bor
War
time
price
cont
rols
Indu
stry
mob
ilize
s
Cons
umer
goo
ds sh
orta
ges
Post
-war
rece
ssio
npr
edict
ed
Dow
tops
200
—m
arke
t “to
o hi
gh”
Cold
War
beg
ins
Berli
n bl
ocka
de
Sovi
ets d
eton
ate
A-bo
mb
Kore
an W
ar
Exce
ss p
rofit
s tax
U.S.
seiz
es st
eel m
ills
Sovi
ets d
eton
ate
H-bo
mb
Dow
tops
300
— m
arke
t “to
o hi
gh”
Eise
nhow
er il
lnes
s
Suez
Cris
is
Sovi
ets l
aunc
h Sp
utni
k
Rece
ssio
n
Cast
ro se
izes
pow
er in
Cub
a
Sovi
ets d
own
U-2
plan
e
Berli
n W
all i
s ere
cted
Cuba
n M
issile
Cris
is
Kenn
edy
assa
ssin
atio
n
Gulf
of To
nkin
Civi
l rig
hts m
arch
es
New
ark
riots
Viet
nam
War
esc
alat
es
North
Kor
ea ca
ptur
es
USS
Pueb
lo
Mon
ey ti
ghte
ns;
mar
ket f
alls
Wag
e-pr
ice fr
eeze
Wat
erga
te
Oil e
mba
rgo
Nixo
n re
sign
s
U.S.
with
draw
sfro
m V
ietn
am
New
York
City
th
reat
ens b
ankr
uptc
y
Ener
gy cr
isis
Mas
sacr
es in
Cam
bodi
a
Thre
e M
ile Is
land
nucle
ar a
ccid
ent
U.S.
inva
des C
ambo
dia
Absc
am sc
anda
lro
cks C
ongr
ess
Wor
st re
cess
ion
in 4
0 ye
ars
Sovi
ets s
hoot
dow
n Ko
rean
airl
iner
Iran-
Iraq
war
es
cala
tes
U.S.
bec
omes
a
debt
or n
atio
n
U.S.
bom
bs Li
bya
Bank
failu
res p
eak
Iraq
inva
des K
uwai
t
Rece
ssio
n in
U.S
.;So
viet
Uni
on d
issol
ves
Los A
ngel
es ri
ots
Mid
wes
tern
U.S
. floo
ds
Fed
rais
es in
tere
st ra
tes
six
times
Prob
lem
s with
ju
nk b
onds Tech
nolo
gy st
ocks
stum
ble
Chao
s in
Asia
n m
arke
ts
Glob
al e
cono
mic
turm
oil
Fear
s of Y
2K
com
pute
r pro
blem
s
Reag
an a
nd th
e po
pe a
re sh
ot
Inte
rnet
bub
ble
burs
ts
Terro
rist a
ttack
s in
U.S.
Corp
orat
e ac
coun
ting
scan
dals
U.S.
inva
des I
raq
Hurri
cane
s dev
asta
teso
uthe
rn U
.S.
Dow
Jone
s top
s 12
000
for fi
rst t
ime
Subp
rime
cred
it cr
isis
U.S.
rece
ssio
n
U.S.
une
mpl
oym
ent t
ops 1
0%
Gulf
of M
exico
oil
spill
Euro
pean
sove
reig
n de
bt cr
isis
U.S.
face
s “fis
cal c
liff”
U.S.
dra
wn
into
Syr
ian
confl
ict
Gree
k de
bt cr
isis
; Ch
ina
grow
th sl
ows
Wav
e of
pop
ulis
m a
ffect
s el
ectio
ns a
roun
d w
orld
Hurri
cane
s pum
mel
the
U.S.
and
Car
ibbe
an
U.S.
trad
e w
ar w
ith C
hina
Year
five
of f
eder
al g
over
nmen
t’squ
antit
ativ
e ea
sing
pol
icy
Oil p
rices
soar
Dow
tops
400
0, th
en
5000
— m
arke
t “to
o hi
gh”
Averageannual totalreturn for 85 years:
+12.1%
Original investment$10,000
ICA with dividends excluded$12,749,3083
Average annualreturn: 8.8%
ICA with dividendsreinvested$168,662,5472
Average annualreturn: 12.1%
Capital value ($ in 000)
Total value ($ in 000)
Value added by reinvestmentof dividends
Dividendsexcluded: — — $0.5 1.1 0.2 0.6 0.9 1.2 1.1 1.0 1.1 1.0 1.4 1.8 2.0 1.9 2.1 2.2 2.2 2.3 2.4 2.9 3.1 3.3 3.4 3.6 4.0 4.1 4.3 4.5 4.9 5.4 6.7 7.8 9.4 10.2 10.5 10.8 11.0 11.8 17.4 15.8 14.3 14.8 16.0 19.3 24.1 29.1 34.7 33.6 35.1 36.9 41.8 52.9 60.3 67.6 71.2 55.2 60.0 61.4 65.0 70.3 74.0 78.0 88.1 97.4 109.3 115.2 116.1 118.0 120.0 156.6 174.5 166.9 179.3 154.7 153.1 158.2 194.7 175.4 215.2 201.3 236.8 243.5 280.9
Value atyear-end: $12.6 23.0 33.0 19.5 24.7 24.3 22.8 20.0 22.2 28.6 34.2 45.7 43.3 41.9 40.2 42.0 48.1 54.5 58.9 56.9 86.1 105.1 113.4 97.0 136.6 152.4 155.4 187.2 158.2 189.8 216.0 268.6 264.9 333.8 380.9 330.8 328.5 373.7 421.8 339.8 262.5 339.6 425.6 400.2 443.2 508.7 590.7 567.9 717.5 828.8 847.5 1,089.4 1,285.1 1,307.2 1,421.2 1,769.8 1,712.2 2,109.7 2,198.0 2,393.1 2,335.9 2,977.9 3,479.7 4,438.7 5,366.7 6,160.7 6,297.2 5,903.3 4,949.0 6,124.9 6,607.4 6,911.7 7,841.4 8,151.6 5,186.6 6,421.4 6,965.8 6,701.0 7,564.5 9,842.9 10,833.0 10,494.9 11,797.3 13,889.7 12,749.3
Dividendsreinvested: — — $0.5 1.1 0.2 0.6 1.0 1.4 1.3 1.2 1.4 1.4 2.0 2.7 3.0 3.0 3.5 3.8 4.0 4.5 4.7 5.9 6.5 7.2 7.6 8.2 9.5 9.9 10.7 11.4 12.7 14.5 18.4 21.8 26.9 29.9 32.0 33.9 35.7 39.4 60.6 58.3 55.1 59.1 66.4 82.8 107.9 136.7 171.9 175.1 190.9 209.5 245.9 321.9 382.2 446.6 489.4 394.2 440.8 463.4 503.8 559.8 604.2 651.1 748.4 842.1 961.6 1,032.1 1,060.8 1,102.9 1,144.7 1,524.8 1,739.1 1,700.6 1,867.6 1,660.7 1,687.2 1,784.4 2,249.5 2,076.7 2,597.8 2,478.7 2,973.7 3,119.8 3,667.5
Value atyear-end: $12.6 23.0 33.6 20.7 26.5 26.8 26.2 24.3 28.4 37.8 46.6 63.9 62.5 63.2 63.5 69.6 83.5 98.6 110.8 111.5 174.3 218.9 242.9 214.4 310.8 355.5 372.2 458.8 398.7 490.7 571.4 726.6 734.9 948.7 1,111.4 994.3 1,022.0 1,197.9 1,390.0 1,158.1 951.9 1,290.7 1,675.3 1,634.8 1,878.0 2,241.5 2,721.8 2,750.1 3,684.7 4,434.7 4,738.0 6,330.1 7,718.5 8,151.2 9,253.0 11,993.0 12,094.2 15,328.8 16,426.2 18,363.8 18,421.7 24,102.1 28,812.0 37,459.6 46,125.3 53,847.6 56,003.0 53,519.3 45,847.5 58,000.6 63,776.6 68,266.4 79,273.9 84,120.2 55,010.2 70,138.5 77,900.8 76,697.0 88,863.1 117,918.7 132,438.8 130,768.7 150,098.6 180,027.6 168,662.5
Totalreturn +25.6% +83.4 +46.0 –38.3 +27.8 +1.0 –2.3 –7.2 +16.9 +33.0 +23.5 +37.0 –2.2 +1.1 +0.5 +9.6 +20.0 +18.0 +12.4 +0.6 +56.4 +25.6 +10.9 –11.7 +45.0 +14.4 +4.7 +23.3 –13.1 +23.1 +16.4 +27.1 +1.1 +29.1 +17.2 –10.5 +2.8 +17.2 +16.0 –16.7 –17.8 +35.6 +29.8 –2.4 +14.9 +19.4 +21.4 +1.0 +34.0 +20.4 +6.8 +33.6 +21.9 +5.6 +13.5 +29.6 +0.8 +26.7 +7.2 +11.8 +0.3 +30.8 +19.5 +30.0 +23.1 +16.7 +4.0 –4.4 –14.3 +26.5 +10.0 +7.0 +16.1 +6.1 –34.6 +27.5 +11.1 –1.5 +15.9 +32.7 +12.3 –1.3 +14.8 +19.9 –6.3
Average annual return:
10.0%
1940Franklin Roosevelt
Average annual return:
11.5%
1944Franklin Roosevelt
Average annual return:
13.0%
1948Harry
Truman
$10,000 investment 10 years later
Dividends reinvested during period
Average annual return:
16.7%
$46,825
1952Dwight
Eisenhower
Average annual return:
12.8%
$33,264
1956Dwight
Eisenhower
Average annual return:
10.8%
$28,002
1960John F.
Kennedy
Average annual return:
9.0%
$23,598
1964Lyndon
Johnson
Average annual return:
18.3%
$53,508
1980RonaldReagan
Average annual return:
15.3%
$41,411
1984RonaldReagan
Average annual return:
16.5%
$45,955
1988George H.W.
Bush
Average annual return:
13.3%
$34,912
1992Bill
Clinton
Average annual return:
11.0%
$28,319
1996Bill
Clinton
Average annual return:
2.7%
$13,025
2000George W.
Bush
$6,492
$6,942
$7,416
$6,565
$33,980
$29,570
$25,991
$5,076$4,353
$4,190
$10,170 $7,656 $5,669 $4,072 $3,671 $2,391
Average annual return:
7.4%
$20,333
2004George W.
Bush
$2,905
2008Barack Obama
Average annual return:
17.2%
$49,044
1976JimmyCarter
$9,300
Average annual return:
8.7%
$22,958
1972RichardNixon
$5,596
Average annual return:
5.6%
$17,232
1968RichardNixon
$4,314
Average annual return:
7.9%
$27,723
$4,156
Average annual return:
10.7%
19361
Franklin Roosevelt
$2,665
$21,404
Sources: Capital Group, Standard & Poor’s. Dividend calculations sourced from Refinitiv InvestmentView+. Class F-2 shares were first offered on August 1, 2008. Class F-2 share results prior to the date of first sale are hypothetical based on Class A share results without a sales charge, adjusted for estimated annual expenses. The results shown are before taxes on fund distributions and sale of fund shares. Past results are not predictive of results in future periods. Results for other share classes may differ.
Expense ratio was 0.39% as of the fund’s prospectus available at the time of publication.When applicable, investment results reflect fee waivers and/or expense reimbursements, without which results would be lower. Please see capitalgroup.com for more information.
Here are ICA’s average annual total returns on a $1,000 investment with all distributions reinvested for periods ended September 30, 2019: 1 year 5 years 10 yearsClass F-2 shares –0.32% 8.28% 11.31%
Figures shown are past results for Class F-2 shares with all distributions reinvested and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. For current information and month-end results, visit capitalgroup.com.
The stock market is represented by Standard & Poor’s 500 Composite Index, a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. The index is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.
The Investment Company of America® 21 elections and counting
1 Investment results shown are for 10-year periods beginning on January 1 of the year shown. 2 Includes dividends of $45,282,202, and capital gain distributions of $95,798,465, reinvested in the years 1936–2018.3 Includes reinvested capital gains of $9,258,017, but does not reflect income dividends of $4,562,617 taken in cash.
As you can see in the mountain chart below, a hypothetical $10,000 investment in The Investment Company of America has grown steadily and significantly over the fund’s 85-year history.
Additionally, a hypothetical $10,000 investment in ICA made at the beginning of an election year was always larger 10 years down the road.
Lit. No. MFF2BR-005-1119P Litho in USA CGD/CIP/10204-S75466 ©2019 Capital Group. All rights reserved. Printed on recycled paper
Red, blue and youBeliefs about which political party is best for the markets might discourage you from investing. But as you can see from the chart below, whether a Republican or a Democrat claims victory hasn’t been a deciding factor in how a $10,000 investment made at the beginning of an election year looked 10 years down the road.
Source: Capital Group.
Each 10-year period begins on January 1 of the first year shown and ends on December 31 of the final year shown. For example, the first period listed (1936–1945) covers 1/1/36 through 12/31/45.
Class F-2 shares were first offered on August 1, 2008. Class F-2 share results prior to the date of first sale are hypothetical based on Class A share results without a sales charge, adjusted for estimated annual expenses. The results shown are before taxes on fund distributions and sale of fund shares. Past results are not predictive of results in future periods. Results for other share classes may differ.
Growth of a hypothetical $10,000 investment made at the beginning of an election year
2008–2017
2004–2013
2000–2009
1996–2005
1992–2001
1988–1997
1984–1993
1980–1989
1976–1985
1972–1981
1968–1977
1964–1973
1960–1969
1956–1965
1952–1961
1948–1957
1944–1953
1940–1949
1936–1945 $27,723
$25,991
$29,570
$33,980
$46,825
$33,264
$28,002
$23,598
$17,232
$22,958
$49,044
$53,508
$41,411
$45,955
$34,912
$28,319
$13,025
$20,333
$21,404
$10,000 initial investment
In 19 of the 19 10-year periods you had a positive return.
In 17 of the 19 10-year periods you doubled your investment.
ICA total ending value 10 years after the start of a Republican presidency
ICA total ending value 10 years after the start of a Democratic presidency
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus and summary prospectus, which can be obtained from a financial professional and should be read carefully before investing.If used after December 31, 2019, this brochure must be accompanied by a current American Funds quarterly statistical update.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
American Funds Distributors, Inc., member FINRA.
How to survive the uncertainty and invest with confidence
Guide to investing in an election year
How to invest with confidence in an election year
Presidential elections can be divisive and unsettling. At times, the fate of the world seems to hang in the balance. But when it comes to investing, do elections really matter all that much?
U.S. voters will have their say on November 3, but by maintaining a long-term focus, investors can position themselves for a brighter future regardless of the outcome at the voting booth. In fact, overreacting to short-term volatility during election cycles can be detrimental to investment returns.
In this guide, we address top advisor questions about investing in an election year, drawing insights from our analysis of over 85 years of investment data across 22 election cycles.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.Past results are not predictive of results in the future.
U.S. stocks have trended up regardless of whether a Republican or Democrat won the White House.
A $1,000 investment in the S&P 500 Index when FDR became president in 1933 would have been worth over $14 million today. During that time there have been seven Republican and seven Democratic presidents.
Primary season tends to be volatile, but markets have bounced back strongly afterward.
Stocks have returned 10.2% in the 12 months following primaries, compared to 5.8% in similar periods of non-election years.
Investors often get nervous and move into cash during election years.
Net asset flows into money market funds have been more than three times higher in election years than in non-election years.
But staying on the sidelines has rarely paid off. It’s time, not timing, that matters most.
Stocks have had negative returns in only two of the last 20 election years (2000, 2008), and both declines were largely attributed to asset price bubbles rather than politics.
Here’s what we learned:
GUIDE TO INVESTING IN AN ELECTION YEAR
– 2 –
To download this full guide, go to www.guidetoelections.com
1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018
Democratic presidency
Republican presidency
$1,000
$1,000,000
$10,000,000
$10,000
$100,000
Which political party has been better for investors?
Investing during an election year can be tough on the nerves, and 2020 promises to be no different. Indeed, politics can bring out strong emotions and biases, but investors would be wise to tune out the noise and focus on the long term.
That’s because elections have, historically speaking, made essentially no difference when it comes to long-term investment returns.
What should matter more to investors is staying invested. A $1,000 investment in the S&P 500 made when Franklin D. Roosevelt took office would have been worth over $14 million today. During this time there have been seven Democratic and seven Republican presidents.
Current economic and political challenges may seem unprecedented — political gridlock, the coronavirus outbreak and rising tensions around the globe — but a look at past election cycles shows that controversy and uncertainty have surrounded every campaign. And in each case the market has continued to be resilient over time. Successful investors stay the course and rely on time in the market rather than timing the market.
Bottom line: U.S. stocks have trended up regardless of whether a Democrat or Republican won the White House.
sources: Morningstar, Standard & Poor‘s. As of 12/31/19. Dates of party control are based on inauguration dates. Values are based on total returns in USD. Shown on a logarithmic scale.
Growth of a hypothetical $1,000 investment in S&P 500 Index
GUIDE TO INVESTING IN AN ELECTION YEAR
– 3 –
0
12%
6
Election day
Election years
Non-election years
Jan Mar Jul Sep Nov Jan Mar MayMay
But markets have tended to bounceback and return to an upward trajectory after primaries end.
PRIMARIES AFTER PRIMARIESThe first five months of election yearshave had lower average returns and higher volatility.
What typically happens to the stock market during election years?
Markets hate uncertainty, and what’s more uncertain than primary season of an election year? With so many candidates on the campaign trail — 14 Democrats were still running at the start of 2020 — the range of outcomes can feel daunting.
But the volatility is often short-lived. After the primaries are over and each party has selected its candidate, markets have tended to return to their normal upward trajectory.
Patient investors who stay the course have often been rewarded. Since 1932, stocks have gained an average of 10.2% in the 12 months following the conclusion of the primaries (using May 31 as a proxy) compared to just 5.8% in similar periods of non-election years.
But keep in mind, these are just averages. Investors shouldn’t try to time an entry point into the market. Instead, a long-term approach can help investors withstand volatility and feel confident that markets have tended to move higher over time, even in election years.
Bottom line: Primary season tends to be volatile, but markets have bounced back strongly thereafter.
sources: Capital Group, RIMES, Standard & Poor‘s. Includes all daily price returns from 1/1/32–12/31/19. Non-election years exclude all years with either a presidential or midterm elections.
S&P 500 Index average cumulative returns since 1932
GUIDE TO INVESTING IN AN ELECTION YEAR
– 4 –
0
20
40
60
80
100
120%
2014 2015 2016 2017 2018 2019
Periods when health carelagged the S&P 500 by
more than 8%
S&P 500
Health care
2016 Election cycle 2020 Election cycle2018 Midterm cycle
Which sectors have done best in election years?
It‘d be great if there were go-to sectors to invest in every election year, but unfortunately investing isn’t that simple. Every election cycle brings its own parade of candidates with their own policy agendas, so market winners and losers are hard to predict.
This time, it’s the health care sector that’s in the spotlight. Heated rhetoric over drug pricing has put pressure on many stocks across the pharmaceutical and managed care industries.
Does that mean you should avoid this sector altogether? Not according to Rob Lovelace, an equity portfolio manager with 34 years of experience investing through many election cycles. “When everyone is worried that a new government policy is going to come along and destroy a sector, that concern is
usually overblown,” Lovelace says. “Companies with good drugs that are really helping people will be able to get into the market, and they will get paid for it.”
Health care stocks rallied after the campaign spotlight of the 2016 presidential and 2018 midterm election cycles faded away. And it was the top-returning sector in 4Q19 after being the worst for the first nine months of the year. Other sectors have had similar post-election rallies in the past. This can create buying opportunities for investors with a contrarian point of view and the ability to withstand short-term volatility.
Bottom line: Election year volatility can create buying opportunities for long-term investors.
sources: RIMES, Standard & Poor‘s. Includes periods from 12/31/13–12/31/19. Highlighted periods reflect when the health care sector lagged the S&P 500, in part due to negative sentiment caused by policy proposals during election campaigns. All returns in USD.
Cumulative returns of S&P 500 and S&P 500 Health Care
GUIDE TO INVESTING IN AN ELECTION YEAR
– 5 –
Equity funds Money market funds
0
20
40
60
80
100
120
140
160
$180B
Year 1 Year 2 Year 3 Year 4
Presidentialelection year
What mistakes do investors often make in election years?
If you’re nervous about the markets in 2020, you’re not alone. Presidential candidates often draw attention to the country’s problems, and campaigns tend to amplify negative messages. So it’s no wonder that investors may start feeling a little pessimistic too. This can become a problem if they allow their mood to affect their money.
History shows that investors have poured into money market funds — traditionally one of the lowest risk investment vehicles — much more frequently leading up to elections. By contrast, equity funds have seen the highest net inflows in the year immediately after an election. This trend holds true even for international funds.
This suggests that investors want to minimize risk during election years and wait until after uncertainty has subsided to revisit riskier assets like stocks.
But market timing is rarely a winning long-term investment strategy, and it can pose a major problem for portfolio returns. On the next page, we’ll take a closer look at how it could negatively impact investor wealth.
Bottom line: Investors often get nervous and move to cash in election years, but that’s rarely a winning strategy.
source: Morningstar. Values based on USD. Equity funds include U.S. and international equity funds.
Average net fund flows by year of presidential term (1992–2019)
GUIDE TO INVESTING IN AN ELECTION YEAR
– 6 –
Investor strategy Average ending value after four-year holding period
$10K
$10K
$10K
$15,866
$15,729
$14,914
Best outcome Worst outcome
14/22cycles
6/22cycles
5/22cycles
0/22cycles
3/22cycles
16/22cycles
This investor isn’t concerned about election uncertainty and invests the full$10K on January 1 of the election year.
FULLY INVESTED
Similar to a 401(k) retirement plan, thisinvestor invests $1K in each of the first 10 months of the election year.
CONSISTENT CONTRIBUTIONS
Nervous about how elections affect markets, this investor waits until January 1 after the election results to invest the full $10K.
SITTING ON THE SIDELINES
What have been the best ways to invest in election years?
Spoiler alert: The best way to invest in an election year has rarely been by staying on the sidelines.
To verify this, we looked at three hypothetical investors, each with a different investment approach. We then calculated the ending value of each of their portfolios over the last 22 election cycles, assuming a four-year holding period.
The investor who stayed on the sidelines had the worst outcome 16 times and only had the best outcome three times. Meanwhile, investors that were fully invested or made monthly contributions (like a 401(k) investor) during election years came out on top. These investors had higher average portfolio balances over the full period and more frequently outpaced the investor who stayed in cash longer.
Sticking with a sound long-term investment plan based on individual investment objectives is usually the best course of action. Whether that strategy is to be fully invested throughout the year or to consistently invest through a vehicle such as a 401(k) plan, the bottom line is that investors should avoid market timing around politics. As is often the case with investing, the key is to put aside short-term noise and focus on long-term goals.
Bottom line: Staying on the sidelines has rarely paid off. It’s time, not timing, that matters most.
sources: Capital Group, Morningstar, Standard & Poor’s. The three hypothetical investors each have $10K to invest during an election cycle and are invested in a combination of equities and cash at all times. fully invested is always fully invested in equities. consistent contributions starts with $1K in equity and $9K in cash. At the start of each of the next nine months, this investor reduces cash by $1K and makes a $1K contribution to equities, after which they will have made the full $10K contribution to equities. sitting on the sidelines is entirely invested in cash during the first year. At the start of the second year, this investor reduces cash by $10K and makes a $10K contribution to equities. S&P 500 Index used for equity returns, and reflects the reinvestment of dividends. Ibbotson SBBI US 30-Day Treasury Bill Total Return Index used as a proxy for cash returns, and reflects the reinvestment of interest. Returns and portfolio values are calculated monthly and in USD. Analysis starts on January 1 of each election year and reflects a four-year holding period.
Three hypothetical $10K investment strategies during an election cycleAnalysis of 22 election cycles since 1932
GUIDE TO INVESTING IN AN ELECTION YEAR
– 7 –
Key takeaways
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
©2020 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Standard & Poor’s 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2020 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.
Standard & Poor’s 500 Composite Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. The S&P 500® Health Care comprises those companies included in the S&P 500 that are classified as members of the GICS® health care sector.
Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
American Funds Distributors, Inc., member FINRA.
Lit. No. MFGEBR-121-0320P Litho in USA CGD/CIP/10204-S76436 © 2020 Capital Group. All rights reserved.
Election results have had very little impact on long-term investors.
Investors often sit on the sidelines during election years out of fear and uncertainty, but that’s rarely a winning strategy.
Markets have been more volatile during primary season, but tended to rise strongly thereafter.
Investors who were fully invested or made monthly investments did better than those who stayed in cash.
History shows that markets have risen whether a Republican or Democrat has been in office.
Net asset flows into money market funds have been more than three times higher in election years than in non-election years.
It’s important to stay the course through primary season to benefit from any potential rally once the final candidates and eventual winner emerge.
The key is to avoid trying to time markets around politics.
To download this full guide, go to www.guidetoelections.com