The air is thick with debate. Yard signs pepper the streets. Your cousin posts another political tirade on Facebook. Yep, it’s that time again—another presidential election season. And with all the political noise comes another frenzy: election cycle investment hysteria.

Now, if you’re anything like my typical clients—engineers, often retired or soon-to-be—you may be tempted to fire up your favorite spreadsheet and begin crafting complex models in an attempt to predict how the stock market will behave under different election outcomes. You might even find yourself thinking, I’ve got this under control!

Not so fast! Before you dive headfirst into a sea of election data, let’s take a step back and debunk some myths while also shedding light on some investment truths you can lean on—no matter who ends up in the Oval Office. And trust me, your spouse is going to thank me for saving you from turning this into another late-night math marathon.

Myth #1: "The Election Winner Determines Market Performance"

This is probably the most persistent myth out there. Every four years, you'll hear predictions that "If Candidate X wins, the market will crash," or "If Candidate Y wins, we’ll see a market boom!" But before you hit the sell button in fear of your least favorite candidate taking office, let’s look at the data.

While it might seem logical that presidents have a massive influence on stock market performance, the reality is a little more…well, boring. Historical evidence shows that the stock market doesn’t particularly care who the president is. The economy is a complex beast, driven by countless factors, not just who's sitting in the White House.

Dimensional Fund Advisors did an excellent analysis of how much impact presidents have on the stock market, and spoiler alert: it’s not as much as you might think. Over time, markets tend to go up regardless of which party holds power. From 1926 to 2019, the S&P 500 grew an average of 10.3% annually across all presidencies . Does that mean every year was positive? Nope. But trying to tie market performance directly to political leadership is a wild goose chase.

Myth #2: "The Market Crashes During Election Uncertainty"

It’s true that markets don’t love uncertainty, and election years certainly bring plenty of that. But the belief that you should pull out of the market in anticipation of an election-driven crash is misguided. For my spreadsheet-loving engineers, let’s dive into the numbers.

Historically, election years actually tend to bring positive returns, despite the noise and uncertainty. A study by Charles Schwab found that, since 1928, the average return of the S&P 500 during an election year was about 11.3%. That’s not exactly crash territory, is it?

Yes, you might see short-term dips in the market around election results, but long-term investors (and you’re in it for the long haul, right?) shouldn’t let short-term noise influence long-term strategy. Remember, your investments should be like your trusty flywheel—a bit slow to start, but eventually building momentum and powering forward regardless of the surrounding noise.

Truth: Long-Term Market Performance Depends More on the Economy than the Election

What does this mean? Well, regardless of which political party is in power, the stock market tends to respond more to the broader economy—think GDP growth, interest rates, inflation—than to who’s sitting in the Oval Office. For example, during periods of economic expansion, the market generally performs well regardless of which party controls the government.

Let’s tease the engineers a bit more: While you’re building those complex financial models to predict every election scenario, the reality is that those “predictive powers” are no match for long-term economic forces that are far more important than election outcomes. Save yourself the trouble, and maybe spend that extra time with your spouse instead (trust me, they’ll appreciate it).

Myth #3: "We Should Move to Cash Until After the Election"

Ah, yes. The timeless strategy of “I’ll sit on the sidelines until this election blows over.” I get it; the idea of protecting your hard-earned savings seems comforting. But here’s the cold, hard truth: sitting on the sidelines might cost you more than you think.

Market timing—jumping in and out of the market based on short-term predictions—is like trying to guess the next turn your GPS will tell you to take without even looking at the map. You’re more likely to make a wrong turn. Studies show that investors who attempt to time the market often miss out on the best days of market performance .

Let’s use an example: From 1990 to 2020, the S&P 500 returned about 7.7% annually. But if you missed just the top 10 days of market performance, your return would drop to 4.5%. Miss the top 30 days, and you’re looking at just 0.9%. The moral of the story? Stay invested!

The Engineer’s Path Forward: Focus on Your Retirement Guardrails

Alright, now that we’ve busted a few myths, let’s get practical. Many engineers I work with think of retirement as a precise equation—hit X number, and you’re set for life. But here’s the reality: retirement income isn’t a set-it-and-forget-it kind of deal.

Think of your retirement plan as a long road trip. You wouldn’t simply plug your destination into the GPS and never check it again, would you? No! You’d glance at it periodically to see if there are hazards ahead, road closures, or opportunities for a faster route. Your financial plan should be no different.

During election cycles, market volatility can make even the most level-headed engineer a little nervous. But instead of trying to overhaul your portfolio every four years, it’s important to focus on guardrails. As your financial GPS, I help you stay within those high/low spending limits, adjust for unexpected bumps in the road (like recessions, pandemics, or surprise tax laws), and recalibrate if new information arises. Flexibility is key.

Here’s a comforting truth: The presidential election is just one factor out of many. Your retirement plan should already have room for these kinds of changes. If we’ve built your plan right—and we have!—it’s designed to withstand the election rollercoaster.

Truth: Your Best Election Investment? A Strong Financial Plan

In all seriousness, one of the best things you can do as you near retirement is to stop obsessing over the election’s impact on your portfolio and refocus on what matters: the foundation of a solid financial plan. You don’t need to predict the future—you just need a strategy that’s built to adapt.

For my engineers out there, this is like building a robust system with built-in redundancies and safety protocols. Yes, there will be some variables you can’t control, but the system (in this case, your financial plan) is designed to weather various scenarios. You’ve got your emergency funds, your investment strategy, and your withdrawal plan—all calibrated for sustainability. And the best part? You don’t have to tweak the system every time the political winds shift.

A Final Word for the Engineer’s Spouse

Spouses, if you’re reading this, you’ve probably watched your engineer partner agonize over their spreadsheets more than once. Let me give you a little insider tip: it’s not necessary. You’ve already put in the work to build a thoughtful, long-term plan that can stand the test of time (and a presidential election or two). So next time they sit down to crunch numbers, kindly remind them of this blog post, and maybe suggest a nice walk instead.

Citations:

1. Dimensional Fund Advisors. “How Much Impact Does the President Have on Stocks?” Dimensional.com, August, 2024.

   • This analysis dives into the correlation between presidential terms and stock market performance, debunking the myth that election results drive the long-term direction of the market.

2. Schwab Center for Financial Research. “The Stock Market and Presidential Elections.” Schwab.com, October 14, 2020.

   • This study provides historical data showing how the stock market has performed during election years, emphasizing that market performance is influenced by a variety of factors, not just the election outcome.

3. S&P 500 Data. Historical returns and performance data available from SlickCharts.com. Last accessed September 19, 2024.

   • A detailed breakdown of annual S&P 500 returns, including data on how missing the top market days can severely impact long-term returns.

4. Fidelity Investments. “What Election Years Mean for Markets.” Fidelity.com, October 2024.

   • Fidelity provides data and insights showing that stock markets tend to grow over the long term regardless of which party holds office, helping debunk myths about election-based investing decisions. Read it here.

5. Vanguard. “Investing in an Election year.” Vanguard.com, March 2024.

   • Vanguard’s analysis highlights that market performance is influenced by broader economic factors rather than specific election outcomes, emphasizing the importance of staying the course during political cycles. Available here.

6. Morningstar. “The Truth About Election Results and Stock Market Performance” Morningstar.com, October 2024.

   • Morningstar provides insights into the limited impact presidential elections have on long-term stock market performance. It suggests that while political transitions can create short-term volatility, market fundamentals like earnings and economic growth are more critical in driving performance over time. The piece also emphasizes the risks of letting election cycles influence long-term investment decisions.