Content courtesy of Dimensional Fund Advisors. Author is David Booth, Founder and Chairman
This year marks the 15th time I’ve had the opportunity to vote for our nation’s leader. When I was growing up in Kansas, my family instilled in me the importance of casting your ballot. It’s a civic responsibility I continue to take seriously.
In many ways, this year’s presidential election feels like the most unusual one yet. In just the past few months, we’ve seen the attempted assassination of a former president who’s running again, the withdrawal of an incumbent president, and the elevation of a sitting vice president. Pollsters and commentators are still trying to make sense of the changes and what they might mean for the US and the global community. We have deep cultural divisions, the economy’s still recovering from the effects of a global pandemic, and there are heightened geopolitical tensions around the world. For many voters, this moment feels historic.
And yet as an investor, I’m fully confident in the long-term prospects for the stock market. And I know investors will continue to have opportunities to pursue their financial goals no matter who wins the White House, which party controls Congress, or what stocks do in November. Why am I so confident in this prediction? Because of history, and because of people.
First, we can look to history. Over the past century, through Republican and Democratic administrations, US stocks have consistently trended upward, returning on average about 10% a year. (Footnote 1) Even this year, despite the electoral uncertainty, the S&P 500 Index has risen about 22%. (Footnote 2)
Election outcomes are just one of many inputs that can impact stocks and bonds. After all, shareholders are investing in companies, not in politicians. There are many other factors that can influence returns, including foreign affairs, oil prices, and technological breakthroughs.
Second, we can look to people. Time and again, people have come up with creative solutions for problems big and small. This is how new companies start and established companies grow. I continue to believe in the power of human ingenuity to innovate and create investment opportunities.
As optimistic as I am about the long-term outlook for markets, I also know it can be challenging to keep this historical perspective in mind when we’re inundated with campaign advertisements, news alerts, and experts analyzing the latest polls. There’s a lot of noise out there. And what’s important—in politics and investing—is being able to separate the meaningful information from the noise. Most observers, for example, think the presidential election is going to be close, with the majority of polls falling within the margin of error.
Any poll result within that range isn’t telling us much, if anything, that’s new. It’s another form of noise. History shows us that markets have moved forward regardless of who has led the polls—and won elections.
When people feel uncertain, they may be tempted to make investment decisions based on how they think elections might unfold. But there’s nothing in the historical data that’s strong enough to warrant changing your investment allocation based on who you think might win. In fact, trying to time the market may lead to costly mistakes. Investors are generally better off looking beyond elections and maintaining a steady approach to markets.
So control what you can control. If you’re feeling anxious about your investments, talk with a financial advisor. A good advisor can help you develop a plan you can stick with through the ups and downs of the market, and they can help you tune out the noise during periods of economic and political uncertainty.
I’m not sure which presidential candidate will prevail, or which party will control the Senate or House of Representatives. But my 50 years in finance have taught me to believe in the power of markets. In just the past 25 years, markets have adapted to Y2K, 9/11, a global financial crisis, and a pandemic. Despite all the uncertainty, a dollar invested in the S&P 500 stocks in January of 1999 would have been worth more than $6 at the end of 2023. (Footnote 3) When we look back 25 years from now, I’m fully confident that markets will have continued to work and that investors can still have a positive investment experience.
So on Election Day, I’ll be watching the returns just like everybody else. But I won’t be adjusting my investment plan. As I often tell people: “Vote with your ballot, not your life savings.”
This piece originally appeared in the Financial Times.
See a PDF of the original article here.
Footnotes
In US dollars. Based on S&P 500 Index annual returns, 1926–2023. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
Based on S&P 500 Index returns. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
In US dollars. Based on S&P 500 Index Total Return, 1999–2023. S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Data presented in the growth of $1 analysis is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The data is for illustrative purposes only and is not indicative of any investment.
Disclosures
The information in this material is intended for the recipient’s background information and use only. It is provided in good faith and without any warranty or representation as to accuracy or completeness. Information and opinions presented in this material have been obtained or derived from sources believed by Dimensional to be reliable, and Dimensional has reasonable grounds to believe that all factual information herein is true as at the date of this material. It does not constitute investment advice, a recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. Before acting on any information in this document, you should consider whether it is appropriate for your particular circumstances and, if appropriate, seek professional advice. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized reproduction or transmission of this material is strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.
This material is not directed at any person in any jurisdiction where the availability of this material is prohibited or would subject Dimensional or its products or services to any registration, licensing, or other such legal requirements within the jurisdiction.
“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
UNITED STATES
Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value
Dimensional Fund Advisors does not have any bank affiliates.
CANADA
These materials have been prepared by Dimensional Fund Advisors Canada ULC. The other Dimensional entities referenced herein are not registered resident investment fund managers or portfolio managers in Canada.
This material is not intended for Quebec residents.
Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.
AUSTRALIA
This material is issued by DFA Australia Limited (AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, to the extent this material constitutes general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and the target market determination (TMD) that have been made for each financial product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
NEW ZEALAND
This material is issued by DFA Australia Limited (incorporated in Australia, AFS License No. 238093, ABN 46 065 937 671). This material is provided for information only. This material does not give any recommendation or opinion to acquire any financial product or any financial advice product, and is not financial advice to you or any other person. No account has been taken of the objectives, financial situation or needs of any particular person. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. Investors should also consider the Product Disclosure Statement (PDS) and for the Dimensional Wholesale Trusts the target market determination (TMD) that have been made for each financial product or financial advice product either issued or distributed by DFA Australia Limited prior to acquiring or continuing to hold any investment. Go to dimensional.com/funds to access a copy of the PDS or the relevant TMD. Any opinions expressed in this material reflect our judgement at the date of publication and are subject to change.
WHERE ISSUED BY DIMENSIONAL IRELAND LIMITED
Issued by Dimensional Ireland Limited (Dimensional Ireland), with registered office 3 Dublin Landings, North Wall Quay, Dublin 1, Ireland. Dimensional Ireland is regulated by the Central Bank of Ireland (Registration No. C185067).
WHERE ISSUED BY DIMENSIONAL FUND ADVISORS LTD.
Issued by Dimensional Fund Advisors Ltd. (Dimensional UK), 20 Triton Street, Regent’s Place, London, NW1 3BF. Dimensional UK is authorised and regulated by the Financial Conduct Authority (FCA) - Firm Reference No. 150100.
Dimensional UK and Dimensional Ireland do not give financial advice. You are responsible for deciding whether an investment is suitable for your personal circumstances, and we recommend that a financial adviser helps you with that decision.
Dimensional UK and Dimensional Ireland issue information and materials in English and may also issue information and materials in certain other languages. The recipient’s continued acceptance of information and materials from Dimensional UK and Dimensional Ireland will constitute the recipient’s consent to be provided with such information and materials, where relevant, in more than one language.
NOTICE TO INVESTORS IN SWITZERLAND: This is advertising material.
JAPAN
For Institutional Investors and Registered Financial Instruments Intermediary Service Providers.
This material is deemed to be issued by Dimensional Japan Ltd., which is regulated by the Financial Services Agency of Japan and is registered as a Financial Instruments Firm conducting Investment Management Business and Investment Advisory and Agency Business.
Dimensional Japan Ltd.
Director of Kanto Local Finance Bureau (FIBO) No. 2683
Membership: Japan Investment Advisers Association
SINGAPORE
This material is deemed to be issued by Dimensional Fund Advisors Pte. Ltd. (UEN:201210847M), which is regulated by the Monetary Authority of Singapore and holds a capital markets services license for fund management.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
FOR PROFESSIONAL INVESTORS IN HONG KONG
This material is deemed to be issued by Dimensional Hong Kong Limited (CE No. BJE760) (“Dimensional Hong Kong”), which is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.
This material should only be provided to “professional investors” (as defined in the Securities and Futures Ordinance [Chapter 571 of the Laws of Hong Kong] and its subsidiary legislation) and is not for use with the public. This material is not intended to constitute and does not constitute marketing of the services of Dimensional Hong Kong or its affiliates to the public of Hong Kong. When provided to prospective investors, this material forms part of, and must be provided together with, applicable fund offering materials. This material must not be provided to prospective investors on a standalone basis. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if appropriate, seek professional advice.
Neither Dimensional Hong Kong nor its affiliates shall be responsible or held responsible for any content prepared by financial advisors. Financial advisors in Hong Kong shall not actively market the services of Dimensional Hong Kong or its affiliates to the Hong Kong public.