How Will the Election Affect Your Retirement?

Who will win the election in 2020? In truth, nobody knows and predicting seems to be more difficult than ever. Either way, 

election years are always intriguing because they cause some uncertainty. Considering we’ve also endured a global pandemic in 2020, it’s natural to worry about economic weaknesses and stock market fluctuations. However, history tells us that the effects of an election can occur well before the election itself. We want you to be ready for any side-effects and have developed a guide as a result!  

 

Predicting an Election 

 

As the television debates begin, we don’t blame you for getting drawn into the social media stories and constant coverage that news channels lend to this story. In our experience, though, looking back in time is a better way to gauge who will win an election. The most experienced economists base predictions on historical trends rather than certain personality traits or election polls.  

 

To make a prediction, we need to consider history alongside gas prices, growth rates, wages, inflation, and unemployment. 

Naturally, reelection is more likely when the economy is thriving. Though there was lots of attention on the economy and stocks with President Trump’s impeachment towards the end of 2019, the reality was that nothing really happened. With 

partisan votes in the Senate and House, it was classed as a ‘non-event’.  

 

On the other hand, the COVID-19 pandemic is far from a non-event. On March 16, the Dow Jones Industrial Average experienced the fastest drop in its history. Meanwhile, there was a 30% decrease in the S&P 500 across just over three weeks. By early June, the country was officially in recession, and unemployment continued even after a fairly smooth recovery. With the relationship we’ve seen between economy and reelection, this could land Trump in some trouble (even if the economic downturn wasn’t directly caused by the Trump Administration).  

 

If President Trump doesn’t get reelected, he will be the first since George H.W. Bush in 1984 not to get a second term. With millions of Americans hit by the difficult and turbulent times in 2020, many could look for change.  

 

Why is this important? Because whether or not President Trump is reelected will have a knock-on effect on the markets. 

Traditionally, reelection generates a positive effect, and this would mean great news for retirement funds. This being said, 

2020 is one of the most unpredictable years on record, and anything could happen after the election this year.  

 

Republicans vs. Democrats  

 

Naturally, both parties have conflicting views on how to aid the economy. We’ve seen differing opinions on key matters, 

including:  

 

● Minimum wage  

● Job creation  

● National debt  

● Immigration  

● Taxes 

● Climate change  

● Trade  

● Health care  

 

As history shows, the speed of politics means that even drastic policy changes can take years to implement, while it can take even longer to see the impact of certain policies on the economy. In the last 70 years, the statistics point to Democratic presidents for a better stock market performance. Yet, experts will tell you that all three government levels are essential for the markets (regardless of who gets in the White House). 

 

When one party holds both chambers of Congress and has the president, it’s much easier for this party to pass through laws. But this doesn’t automatically mean positive stock market performance because this historically comes from a divided government. Negative effects are possible when one party wins the House of Representatives, Senate, and White House. 

 

Promises of an Election Campaign  

 

During an election campaign, both parties will undoubtedly make promises to the public. While the motivation is generally to get votes, most politicians do indeed try to push through these promises when in power; they will rarely go back on their word. This being said, it’s natural that some promises will have priority over others. With all the promises a presidential candidate makes on a campaign trail, it’s almost impossible to achieve them all across one term, and compromises are natural (especially when the party doesn’t control both chambers of Congress).  

 

Under an administration, it’s fair to say that two-thirds of promises are kept from a campaign. Since legislation takes time, we wouldn’t worry too much about what the candidates are saying just yet.  

 

Protecting Your Retirement from the Unknown  

 

How can you protect your retirement when there is so much unknown in the future? Great question, and we’d start by suggesting comfortable levels of risk. Also, try to see volatility in perspective because it doesn’t indicate a bear market just because a stock, commodity, bond, or market index falls by 10% (a market correction). Generally speaking, the price of a 

bond/stock will bottom out, and the market correction will be a temporary one. From here, investors will buy again.  

 

Three example causes of a market correction include: 

 

● Technical analysis  

● Profit selling  

● Corporate earnings  

 

Additionally, a correction can occur after a sell-off caused by a negative event in the news generates fear. Presidential elections aren’t immune from this; while there was a surge in the Dow Jones Industrial Average with the almost-guaranteed reelection of Bill Clinton in 1996, the uncertainty leading up to the 2004 election led to the opposite effect. Once George W. 

Bush was elected, the performance was strong for the remainder of the year, and the Dow Jones jumped over 10%.  

 

How will the election affect your retirement? This is the question we’ve posed with this guide, and the answer is split into two. 

In the short-term, you might experience a volatile market; however, history suggests success in the long-term. Over the past four decades, the average of market corrections is just under 15%. Considering the full picture, the negative years are outweighed by the positive years, and patience usually gets the end’s rewards. 

 

Summary – Be Patient  

 

We understand this is a scary time, particularly combined with the effects of the election and the pandemic. One of the best pieces of advice we can offer is to avoid panicking. You don’t have to take drastic action, so long as you’re comfortable with the risk in your portfolio right now, and you have time on your hands.