Elections and the Stock Market: Much to Do About Nothing
It’s a presidential election year and with that comes the invariable stock market correlations seeking to predict election results or forecast the market’s direction. On one hand, the performance of the stock market during the two months leading up to the election has been somewhat of a predictor of who will win the race. On the other hand, we try to predict the direction of the market based on who wins the election. While all of this makes for interesting and fun banter around the water cooler, thoughtful investors would be wise to leave their Ouija boards in the closet and stay focused on their long-term investment strategy. As much as we would all like to glean even a small amount of investment insight from the election year follies, it would be important to note that the stock market is essentially non-partisan, and Presidents have very little impact on the direction of the markets.
Are Investors Their Own Worst Enemy?
When it comes to investing, people can be their own worst enemy. Nearly all of the mistakes made by investors can be attributed to their behavior which is typically dictated by their emotions. Fear and greed have a way of driving even the most rational people to making investing decision which is why most investors typically under perform the markets. According to a 2015 study by DALBAR, the returns most investors experience lag the actual returns of the mutual funds they buy. In 2014, the average equity mutual fund investor under performed the S&P 500 by a wide margin of 8.19%. Over the 20-year period ending in 2014, the S&P 500 index returned 9.85%, but the average equity fund investor only earned 4.66%.*