Another election cycle has begun, and you may feel a looming anxiety about how your wealth and investment portfolio will be affected. Recent surveys show how heavily the 2024 election outcome is weighing on investors. A retirement study by Nationwide showed that 45% of respondents believe it will significantly sway their portfolios—more so than financial markets.1 This bipartisan concern spans 68% of Republican and 57% of Democratic investors surveyed. To that end, 33% of pre-retirees have already started to manage their investments more conservatively due to election uncertainty.2
Each time an election cycle revs up, people start to get nervous about their finances. In 2016, for example, 47% of investors with at least $1 million in assets3 considered reducing their market exposure around the election, according to a UBS survey. In spite of these fears, the S&P 500 grew at an average annualized rate of 15% over the next four years.4
To gain some perspective, we recommend taking a step back. Our analysis digs into the historical stock market performance across different political eras, spanning more than a century. Although elections often stir emotions and fuel speculation, the data reveals that election results have minimal impact on long-term market gains and shouldn’t be the driver of your financial decisions.
Personal tax rates are probably going in one direction: Up.
Decoding the partisan spin on market data
Red or blue, you can cherry-pick data to argue that either political party is best for the economy and market performance. The true nature of economic indicators is more complex, and there are inherent challenges in drawing conclusions based on whatever narrow view of the data is being shown. Here are a few ways the data can be spun:
- Since 1915, the Dow Jones Industrial Average (DJIA) has risen an average of 9.7% annually under Democratic presidents and 6.4% under Republicans. It has risen an average of 2.05% in election years when a Democrat is elected and 8.13% in election years with a Republican’s victory.
- Since 1929, the broader S&P 500 has risen an average of 10.4% annually under Democratic administrations and has gained an average of 13.1% the year after a Democrat wins. Meanwhile, the S&P 500 has gained 4.1% a year on average when Republicans have held the White House and has declined -0.8% on average in the year after a Republican president is elected.
- Since 1915, the S&P 500 has risen an average of 6.9% in the year after political parties change in the White House versus an average gain of 6.6% when the incumbent party wins. Since 1929, the DJIA has risen 10.1% in the year parties change, compared with 4.17% the year after the incumbent party wins.
- Since 1961, real GDP has risen an average of 3.45% per annum under Democratic presidents, while Republican presidents have overseen a 2.53% average gain.
| How Stocks Performed | S&P 500 1929–2023 | DJIA 1915–2023 | ||
|---|---|---|---|---|
| Democrats | Republicans | Democrats | Republicans | |
| Years in Office |
52
(35 up, 16 down) |
46
(28 up, 16 down) |
57
(38 up, 19 down) |
52
(34 up, 18 down) |
| Avg. Annual Return | 10.4% | 4.1% | 9.7% | 6.4% |
| Avg. 4-Year Term Return | 40.1% | 16.6% | 37.9% | 15.2% |
| Avg. Annualized 4-Year Return | 10.0% | 5.0% | 8.6% | 6.8% |
| Avg. Year 1 Return | 13.1% | -0.8% | 10.6% | 6.8% |
| Avg. Year 2 Return | 3.7% | 2.9% | 3.9% | 4.9% |
| Avg. Year 3 Return | 14.9% | 12.2% | 14.3% | 15.4% |
| Avg. Year 4 Return | 9.8% | 2.2% | 5.5% | 5.0% |
| Biggest Calendar-Year Gain | 47% (1933) | 45% (1954) | 82% (1915) | 49% (1928) |
| Biggest Calendar-Year Loss | -39% (1937) | -47% (1931) | -33% (1920) | -53% (1931) |
Note: All data is based on index-level, not total, returns.
Sources: Macrotrends; analysis by RWA Wealth Partners.
The data allows for a range of narratives, which can be shaped by partisan viewpoints. The important takeaway is to focus on market cycles, not election cycles, when crafting your wealth management plan.
The resilience of long-term investing: A 20-year perspective
Let’s look at it another way. If you’d put $5,000 into an S&P 500 index fund in 2003, you would have seen that investment grow to $25,651 by the end of 2023—a total return of 413% over 20 years. The same $5,000 invested in a fund tracking the DJIA would have grown to $20,950 over the same period, for a total return of 319%.
During the period shown, we saw transitions between Republican and Democratic administrations, as well as the Great Recession and COVID-19 pandemic. Despite some dips along the way, investors earned strong returns in the aggregate. When you can look past the distracting noise of the moment, you’ll see the resilience and growth potential of a well-crafted investment strategy that transcends political and economic cycles.
How to protect your wealth through election cycles
Regardless of who controls Congress or resides in the White House, time-tested principles of portfolio construction and wealth management endure. By taking a disciplined approach focused on diversification, tax efficiency and avoiding reactionary moves, you can help protect your wealth throughout the stages of the election cycle and varying economic conditions.
Diversify your portfolio
No matter what’s happening in politics, you should diversify your investment strategy across asset classes, mid- and large-cap stocks, and geographies. Spreading risk this way can provide stability during times of uncertainty.
Here are some key points to keep in mind:
Start with a strong core for your portfolio
Having a balanced portfolio is important no matter which way political trends are swinging. Make sure you begin with a strong foundation of stocks, bonds and cash. For instance, the traditional 60/40 approach (allocating 60% to stocks and 40% to bonds) combines the growth potential of the stock market with the relative safety of fixed income. In our experience, this allocation earns an average annual return in the high single digits over 10 years.5
Incorporating alternative assets such as private equity, private credit and real estate can diversify your portfolio further. High-net-worth and ultra-high-net-worth individuals are now allocating a greater portion of their portfolios to alternatives to take advantage of strong performance and inflation protections.6 Alternative investments often behave differently than traditional stocks and bonds, helping smooth out volatility spikes around events like elections. An RWA Wealth advisor can help determine if you are eligible for this type of investment and review and reallocate your portfolio based on your risk tolerance and individual goals.
Avoid concentrated stock positions
History shows that one bad investment is more likely to damage your wealth than any given election outcome. In the early 1970s, a group of blue-chip stocks called the Nifty 507 saw substantial gains only for many investors to experience significant losses during the 1973–74 market crash, when the DJIA plummeted nearly 50%. The late 1990s saw tech stocks soar during the dot-com boom, but this bubble eventually burst, leading to an estimated $5 trillion in investor losses.8 More recently, FAANG stocks (Facebook/Meta, Apple, Amazon, Netflix, Google/Alphabet) drove bull markets before experiencing notable drawdowns post-2020. Today, a select group of AI and tech stocks are driving market gains, but unfortunately the markets offer no guarantees.
Manage your taxes
Election outcomes often lead to shifts in tax policy that can impact your wealth planning. As power changes hands in Washington, new administrations and congressional majorities typically seek revisions to the tax code. Over the decades, the tax code has gone through many evolutions. In 1981, the Reagan administration cut marginal tax rates and began the practice of indexing tax brackets for inflation.9 Later, Clinton’s Omnibus Budget Reconciliation Act of 1993 raised top marginal rates to 39.6%, while the Taxpayer Relief Act of 1997 established Roth IRAs and reduced capital gains rates.10
The 2017 Tax Cuts and Jobs Act (TCJA) made sweeping tax code revisions, including lowering individual income tax rates and doubling estate tax exemptions. However, many of these key personal tax provisions are scheduled to expire at the end of 2025 unless new legislation extends them.11 This phaseout could drive individual rates and estate taxes higher while also reducing the charitable giving deduction cap from 60% back to 50% of AGI.
You have an opportunity now to get ahead of the curve before these TCJA provisions sunset. Meet with your financial advisor to explore planning strategies and models for varying tax scenarios.
Steps you may want to consider include:
- Accelerating income before rates potentially rise
- Converting funds from traditional to Roth IRAs
- Taking business dividends in the current year rather than deferring
- Recognizing pass-through business income
- Gifting proactively to protect more of your wealth from estate taxes
- Boosting your tax-efficient charitable giving
Contact us today to find out how you can prepare and adjust your wealth management plan for the sunset of the TCJA.
Avoid knee-jerk reactions
With election talk heating up everywhere, it can be tempting to make reactive moves based on policy speculation or who may be ahead in polls. Remember, evidence reveals that election outcomes do not typically alter long-term growth in the markets. Market gains have historically continued regardless of specific policies or power shifts in Washington.
We expect the long-term trend to continue no matter who wins the 2024 elections. But in the short term, especially in the months leading up to November and those right after, the market could experience some volatility. There’s a historical pattern going back to 1950 that our investment team has been tracking. What typically happens is the market takes a dip in September and October because of the uncertainty around the elections. But once the outcome is known, the market rallies toward the end of the year.
You can see this historical pattern at work in the chart below, which represents a combination of the stock market’s performance in all election years since 1950. Notice how the market has generally moved higher until August and September. That’s when it starts to level off. Then, during October, there’s usually a small dip. But once the election winners are declared, the market starts moving higher again. While there’s no guarantee that the stock market will follow this historical pattern this election year, it’s important context to keep in mind if stocks start to dip in September or October. If they do, remember that they historically rebound and rally right after the election.
Here is what we recommend this year to help you stay focused on your long-term goals and reduce the risk of news headlines adversely impacting your portfolio:
- Do not engage in temporary, fear-driven sell-offs around elections. Such moves may lock in suboptimal prices.
- Stick to predefined portfolio allocation targets.
- Focus on fundamental drivers like corporate earnings and economic health, not political headlines. Market cycles largely hinge on these underlying factors.
- Stay invested according to a strategy aligned with your risk tolerance and goals rather than the whims of political changes.
Patience combined with diversification helps smooth the volatility sparked by election speculation. Don’t let momentary reactions derail progress toward long-term targets.
Talk to an advisor
Navigating the uncertainties of election seasons can be challenging. Media noise can distract you from your financial goals. At RWA Wealth Partners, we’re here to guide you through it. Our focus is on providing you with the right financial advice to maintain a steady course toward your long-term goals.
Our team uses our extensive experience to put current events into perspective, emphasizing the importance of long-standing financial principles. We’ll help you look past politically charged speculation and highlight practical steps for you. Our support is designed to mitigate the anxiety caused by external distractions, enabling you to focus on the aspects of your financial life that you can effectively control.
Timeless growth principles over political speculation
You might find yourself caught in the whirlwind of reactions to what feels like an endless election cycle. The data shows that those who exhibit patience and avoid making sudden, uninformed moves will be rewarded. At RWA Wealth Partners, we focus on personalized financial planning that aligns with your priorities, helping you tune out short-term noise. Our experienced advisors specialize in creating robust portfolios and strategies tailored to your individual risk tolerance, time horizon and goals—not temporary market speculation. By working together to customize your asset allocation and prepare for different tax scenarios, we can build a stable foundation that endures through political changes. Schedule a consultation today to discuss developing a wealth management plan designed to transcend this election cycle and many more to come.
Think of the current estate tax breaks as a limited-time offer.
Sources:
- Nationwide Insurance Company. (2023, October 30). Nearly half of investors believe the 2024 election will have a bigger impact on portfolios than market performance.
- Konish, L. (2023, November 14). Nearly half of investors believe 2024 elections will have bigger impact on their portfolios than market performance, survey finds. CNBC.
- Frank, R. (2016, July 25). Nervous millionaires may bail on stocks after election. CNBC.
- (n.d.). S&P 500 index – 90 year historical chart.
- Adviser Investments. (2022, September 14). Retiring in a bear market: The conservative approach.
- Spitz, J. (2023, May 9). How the wealthy invest: A shift to private equity and real estate. Origin Investments.
- Adinolfi, J. (2023, December 2). Investors beware: ‘Magnificent Seven’ are starting to resemble ‘Nifty 50’ stocks that got crushed in the 1970s market crash. MarketWatch.
- CFI Team. (n.d.). Dotcom bubble. Corporate Finance Institute.
- Henderson, D. R. (2022, May 19). Index state tax brackets now. Hoover Institution.
- Tax Policy Center. (n.d.). Major enacted tax legislation, 1990-1999.
- Johnson, B. (n.d.). The Tax Cuts and Jobs Act expires soon: Are you prepared? RWA Wealth Partners.
Disclosures:
All investments carry risk of loss and there is no guarantee that investment objectives will be achieved. Past performance is not an indication of future returns. Alternative investments are speculative and involve a high degree of risk and are intended for accredited investors only. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with our wholly owned subsidiary, RWA Tax Solutions, LLC. Legal services may be obtained via a separate, written engagement through our relationship with Hall & Diana, LLC. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Companies mentioned in this article are not necessarily held in client portfolios and our reference to them should not be viewed as a recommendation to buy, sell or hold any of them.
Our statements and opinions are subject to change without notice.
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