What Happens to the Stock Market in Election Years

In case you hadn’t heard, 2020 is a big election year. In fact, it is maybe one of the most polarized and heated presidential elections in quite some time.  And we don’t even know who’s running yet. It will likely have an impact on the investment world too. What happens to the stock market in election years?

We’ll take a look back at election years since 1948 and see if that offers any insight into what we could expect in 2020.

Watch: What Happens to the Stock Market in Election Years?

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History doesn’t always repeat itself, but it often rhymes. You can look at certain historical trends and form some fairly realistic expectations. For example, a year ago we looked at what happens the year after a down year in stocks.  In this case, the trend proved to be a solid guide for this year.

2020 is an election year. We thought it would be interesting to look at all the election years after World War II. What happens to the stock market in election years? We found a couple of interesting trends.

Trend 1: Incumbents Are Tough to Beat

The first one has nothing to do with stocks and investing. There have been 18 presidential elections since the end of World War II. It started with Truman’s win over Thomas Dewey in 1948. Ten of those elections featured an incumbent president running against a challenger. In seven of those 10, the incumbent won.

The losers:

  • Gerald Ford lost to Jimmy Carter in 1976.
  • Jimmy Carter lost to Ronald Reagan in 1980, and
  • George H. W. Bush lost to Bill Clinton in 1992.

Trend 2: Stocks Have Done Well in Presidential Election Years

What did the stock market do in all those election years?

  • The stock market posted gains in 16 of those 18 years. 
  • It also saw declines in two of those years.
  • The best election year was 1980 when the S&P 500 improved by more than 32%. And this includes the return from dividends. 
  • 11 of the 16 positive years, the stock market posted double-digit gains.
  • In 2008, the stock market was down 37%.  It was the worst return in an election year.
  • The other negative year was in 2000. That year the stock market decreased 9.1%
  • On average, the compounded annual return for these 18 election years is 8.8%
Click to Enlarge the Chart.

Forming Expectations

What does this mean for 2020? History tells us we should expect a positive year.  In addition, we currently have low unemployment, projected earnings growth, and a growing economy.  All of which would support the expectation for a positive year.

But things don’t always follow historical trends and the supporting data can change without notice.  The added drama of politics will make things a bit more turbulent and interesting in 2020. 

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Were The Predictions Right?

With two weeks remaining in 2019, we review a couple of blog posts from 2018. Both were looking ahead to what might happen this year.  Were the predictions right?  Let’s take a look.

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After a Down Year for Stocks, What Happens Next?

Since 1950, there have only been 15 years when the S&P 500 finished underwater including 2018.  With the concerns at the time, most people were wondering if we would see another negative year in 2019. 

We went digging into the numbers to see how often the stock market posted back-to-back negative years, to see what we should expect.

The data showed in the 14 previous events, the stock market finished higher the next year 11 times. And not just positive a little bit. The average gain following a down year was over 17%

Were The Predictions Right

Was the Prediction Right?

It looks like we will be able to say the next year was positive 12 out of 15—barring a major meltdown in the next couple of weeks.  It also looks like the average gain the year after the down year will go up as well.

The Wall Street Crystal Ball

We also looked at how well the big investment firms could predict the future. In fact we even bought our own crystal ball to see if we could get in on the act. 

We showed 12 predictions from the some of the biggest names on Wall Street.  All 12 predicted gains for the stock market.  Here are some of the highlights.

  • The most pessimistic prediction for stocks was a 3% gain.
  • 5 of the 12 predicted single digit returns for the S&P 500, while 7 forecasted double digit gains.
  • 3 of these firms predicted returns of 20% or more.
  • The average guess for all 12 was a positive return of 14%.
  • And the most optimistic prediction was for a 26% gain.
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Were the Predictions Right?

With just two weeks to go, The S&P 500 is up well over 26% for the year. At least crystal balls at a handful of these firms were close.  That’s a pretty big improvement over 2018’s predictions.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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The Financial Planners 2019 Holiday Gift Guide

What do you get the young adult child who already has everything?  How many gift cards do you really want to buy? Socks?  Really?  Fear not! We have created the Financial Planner’s 2019 Holiday Gift Guide.  And it is sure to be a big hit.   

Watch: 2019 Holiday Gift Guide

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Free Download: The Financial Planner's 2019 Holiday Gift Guide

For that last minute shopper, here is our Financial Planner’s 2019 Holiday Gift Guide.  We cover the basics of Roth IRA’s and 529 Plans.  We’ll also show you—and the lucky recipient—what kind of impact your gift can make on their life.  Click on the button to download your free copy.

The Struggle is Real!

As December rolls around each year, it is always a struggle to come up with gift ideas. And I thought maybe you were having similar problems. So I decided to come up with the financial planners holiday gift guide.

Do you have younger adult children or grandchildren? Tired of buying gift cards to restaurants they hate or ugly socks?

The Perfect Solution: A Roth IRA

What could be a better gift than years of tax free compounded growth? That’s right folks, a Roth IRA makes a perfect gift for that young adult in your life.

Just imagine the riveting conversation you’ll have sitting around the tree. You can talk about compound interest and how “You may not appreciate this now, but one day you’ll be glad you have it. Shoot I wish my parents had started a Roth IRA for me for Christmas. Instead, I got a garage door opener.”   

True Story…

One year, as a twenty-something, my parents bought me a garage door opener.  Not only was it a surprise, it was one of the best gifts I’ve ever received.  You don’t appreciate it until you have to get out of your car in a driving rain storm to open the garage door!

Cam Hardiman

This is Jim’s great grandson (and Neal and Susan’s grandson).  Cam Hardiman was born on November 3rd, 2019.

For the Young Child: Tax Free Growth, for College

We’ve all watched these kids tear into boxes like a tornado. Only to see them spend more time playing with the boxes.

Not this year.  No boxes.  No hermetically sealed plastic packaging you can only open with a blow torch. 

What could be better? You guessed it, a 529 Plan.  This means tax free growth—FOR COLLEGE! 

 

Seriously Good Gifts

Roth IRA’s and 529 plans make terrific Christmas gifts. They aren’t exciting, and you may actually be able to hear  eyes roll.

But, at some point, they will be far more useful than that pair of socks, the remote control car or even a garage door opener.

A Roth IRA offers your kids or grandkids tax free compounding for their retirement. It may not be much today. In thirty or forty years they’ll look back and say, “Wow! Mom and Dad (or grandma and grandpa) did this for me. And look at it now.”

Same thing with 529 plans. The costs of college won’t be coming down anytime soon. At some point. someone will appreciate it more than you may ever know.

Here. We'll show you what we mean.

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Click to enlarge
2019 Holiday Gift Guide
Click to enlarge

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Earning Compound Interest

Earning compound interest can make you money.  Potentially it can make you a lot of money.  Today we’ll show you two examples of how you can benefit from compounded returns.

This is part 2 of our Compound Interest Series.  Part 1: Paying Compound Interest, can be found here.  

Watch: Earning Compound Interest

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Listen Now: Earning Compound Interest

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Free Download: Earning Compound Interest

Compound interest is a tricky subject.  We created a download  you can use to help better understand how you can benefit from compounded returns.  Click on the button to download your copy .

Paying Compound Interest

Earning Compound Interest: The Basics

There are two key components. First is the return you earn. When we are saving and investing, we have many choices. Some investments have greater earning potential than others.

The second key component is time. The longer you can let your money compound the better.

Here is our first example. This is something as a financial planner you learn on day one.

You contribute $2,000 per year at the beginning of every year, and you do this for 40 years—$80,000 total. And you earn the long-term average return of the stock market, which is 10%. It grows to nearly a million dollars.

This was the “pitch” you learned to convince someone to make an IRA contribution. But let’s take a look at how the returns you earn impact the totals.

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The Impact of Time and The Cost of Waiting

We said earlier, time matters. In fact, time might be your biggest asset as a saver. Here is another example from day one of financial planner school.  And it illustrates the cost of waiting to start saving.

Investor A: Save Early

Investor A starts saving $2,000 per year at age 25. She continues that for 20 years and stops. And her future returns average 10% per year.

click image to enlarge

Investor B: Wait To Save

Investor B doesn’t start saving until he reaches age 45. He uses the same investments and earns the same 10% average return.

click image to enlarge

Waiting to start saving means you have to save more to achieve the same result.  In this example, Investor A saved $40,000 total and reached $850,000.  Investor B had to save $13,500 per year, or $270,000 total, to accumulate $850,000 at the same time.  

The impact of compound interest isn’t linear. It’s exponential. And when you understand how it works, you can alter your future for the better. Teaching younger people to save early in life is critical.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Paying Compound Interest

Paying Compound Interest

On today’s show, we talk about paying compound interest.  We’ll discuss:

  • The impact of time
  • The impact of the interest rate

Be sure to scroll down for the charts and graphs that help illustrate how this can impact you.

Watch: Paying Compound Interest

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Listen Now: Paying Compound Interest

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Free Download: The Impact of Paying Compound Interest

Compound interest is a tricky subject.  So we created this free download to help illustrate how it can impact your life.  To download your free copy, please click on the button.  

Paying Compound Interest Example 1: The Mortgage

How does compound interest make you pay? The best example is the mortgage. Most of us borrow money to buy a house. And one of the common decisions is choosing between a 15 or 30-year loan. So let’s look at how this plays out.

30 Year Mortgage

Click Image to Enlarge

You borrow $100,000. Right now, rates for a 30-year mortgage are about 4%. This means your monthly payment is about $478. Because of the effects of compounding, the total cost of this loan over three decades will be $71,870.

15 Year Mortgage

Click Image to Enlarge

If you borrow the same amount over 15 years, your interest rate is lower—about 3.38%. But your payment is also higher. It jumps to $709, not quite twice as much. But over 15 years, your total interest cost is $27,576.

A 15-year mortgage, if you can afford the payment, will save you over $44,000 in total interest expense. That’s nearly half of the loan amount.

For most people, a lot goes into their decision about whether to do a 15-year or a 30-year loan. And the primary factor is the size of the payment. But this illustrates how powerful time can be.

Paying Compound Interest Example 2: Credit Cards

Let’s look at another common example. Credit Cards. Many credit cards require you to pay 2% of your balance as a minimum payment. And credit cards often have rates which could exceed 20%, but let’s use 20% for this example.

Credit Card Repayment

Click Image to Enlarge

You start with a balance of $5,000 and make no other purchases. Your minimum payment is $100. You pay this each month until you eliminate the debt.

It will take you 9 years, and it will cost you over $5,800 in interest. This means you pay more in interest than your original purchases.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts