Investment Insights for Dentists During an Election Year
With election season upon us, many investors, including dentists, may wonder whether they should change their investments based on who wins the US presidency. 2024 is turning into one of the most significant election years in history, with 60% of the global population voting in 76 countries this year. How much do elections actually affect the market and what should your strategy be as an investor?
Dimensional Fund Advisors has examined this question, analyzing the historical market data to see how financial markets respond during an election year and if there’s a connection between who wins The White House and which way stocks will go. Historical data indicates that the outcome of an election is only one of many factors in market performance.
Some worry about election volatility and whether they should exit the stock market before ballots are counted, particularly during an election month, but history doesn’t support this fear. However, examining the history of returns since 1926 on the following chart from Dimensional Fund Advisors, in months of presidential elections shows no consistent pattern. The winning party has not been a reliable way to predict market movements either.
This chart shows months with gains on the right, and losses on the left. The blue (Democrat) and red (Republican) dashes represent months when a presidential election was held and who won the White House. You can see that most election months haven’t produced significant market swings in either direction.
Based on the history of market behavior during election months, there is a strong case for sticking with a plan to achieve long-term goals. (see full pdf report here)
What should you do?
Making decisions based on election outcomes can be risky. Trying to predict market performance based on how you think the election will turn out, or an investment strategy based on a “hunch” may lead to costly mistakes, including missing out on potential market gains. As Dimensional Founder and Chairman David Booth wisely advised, "Vote with your Ballot, not with your life savings."
Notice on the following chart (interactive on the Dimensional.com website) shows how over nearly 100 years of US presidential terms, stocks have consistently trended upward.
Think Long-Term in a
Dentist’s Complex Financial World
As dentists juggle the unique financial challenges that include managing large debt loads from practice ownership, retirement planning, and personal investments, perhaps the temptation to make reactive changes to your portfolio during an election year may be particularly strong. However, a long-term approach to your financial plan will better serve your goals of financial freedom.
Yes, the US president who will win The White House or the political party that will take control of Congress in a few weeks may have an impact on market returns, but historically this is not a reliable way to gauge the market. It is important to remember that other factors such as the actions of foreign leaders, interest rates, changing oil prices, and technological advances also impact the markets. Remember, you’re investing in businesses, not politicians. Businesses are working to solve problems, provide goods and services, and innovate to succeed, no matter what the politicians do.
Stay the Course
As a dentist navigating the complexities of both your practice and personal finances, it's essential to maintain a long-term investment perspective. Stick with your financial plan, focus on your goals for the future, and be careful about making hasty decisions based on election outcomes to ensure that your investments continue working for you.
Feel free to schedule a time with us if you would like some help or have questions about navigating your portfolio through the election and thereafter.
Advisory services are offered through Financial Freedom for Dentists LLC, a SEC Investment Advisor. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
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