Election Season Is Loud. Your Plan Shouldn't Be.

It's that time of year again. Picket signs on street corners. Knocks at the door asking, "Who are you supporting this year?" Cars honking at supporters lining the sidewalks and parks.

Election years are noisy. After a long day of work, all you want is to unwind with the evening news, and instead you get headline after headline bashing the other side. It's no wonder so many people worry that if the "wrong" party wins, it could hurt their retirement savings or shake their confidence in the market.

But step back for a moment. If the country is roughly split down the middle, should the outcome really cause a massive shift in your portfolio? Should you be adjusting your money based on who wins or loses?

The data might surprise you.

The Worry Is Real, and So Is the Volatility

Let's be honest: election years do feel riskier, and the numbers back that up.

Midterms are often seen as a survey on whoever is in power. Control of Congress is at stake, and whichever party wins will shape the legislative agenda for the next two years. When the opposing party takes over, getting anything passed gets harder. Historically, the party in power usually loses seats in midterms. Because that's so common, markets tend to expect it early in the year.

Capital Group studied more than 90 years of market data to see how midterms affect stocks. Here's what they found:

1. Lower returns: since 1931, the S&P 500 has averaged a 4.7% return in midterm years, about half the 9.5% average of all other years. Lower, but still positive.
2. Bigger swings: since 1970, midterm years have had a median volatility of nearly 16%, compared with 13% in other years, especially in the months right before the election.

So, if this year has felt bumpier than usual, you're not imagining it.

Then the Market Tends to Exhale

Here's the silver lining. Markets have tended to rebound after Election Day, and not just for a few days.

Since 1950, the S&P 500 has averaged a 15.4% return in the year after a midterm election, nearly twice the return of other years over a similar period. Once the uncertainty clears, markets often get back to business.

What Actually Drives Your Returns

Over the long run, who's in office isn't what moves your portfolio. Company earnings, innovation, interest rates, and demographics do the heavy lifting.

Since 1933, markets have averaged double-digit returns whether one party controlled the White House and both chambers of Congress, Congress was split, or the president's opposing party controlled Congress.

Now think about your own timeline. A 20- or 30-year retirement will span five, six, maybe seven administrations from both parties. If your plan only works when your side is in charge, that sounds like a pretty fragile plan.

The Real Risk Is Reacting

There's nothing wrong with wanting your candidates to win. The trouble starts when investors act on the outcome.

The most common mistake I see is moving all their money to cash "until things settle down." Things never fully settle. Getting out means you have to be right twice: once when you sell, and again when you decide to get back in. Miss the rebound, and that decision can cost far more than the volatility ever would have.

The same goes for overhauling your allocation the morning after an election. Your goals didn't change overnight, so your plan shouldn't either.

What Is Worth Reviewing

There is one thing worth watching after an election: tax law. But only when laws actually change, not when a campaign promises they will.

If new legislation passes that affects your taxes, retirement accounts, or estate plan, that's the time to sit down with your financial planner and CPA. It's a conversation and a few adjustments, not a reason to tear up your portfolio.

The Bottom Line

Elections matter. Your vote matters. But your portfolio should be built around your goals, not the headlines.

Vote your values at the ballot box and invest your plan based on your goals.

Here’s to planning well and living fully.

—Tyler