Investing During a Mid Term Election Year
2022 has been a rough year to start investing in the stock market! After a huge run up during the later half of 2020 and all of 2021… 2022 has been a down year with lots of “reasons” why asset prices could fall further. Remember though, you have time on your side. Markets move because there are traders, banks, institutions who have businesses and customers and MUST trade to keep those businesses running, and their salaries paid. You don’t have to treat it like a casino! In fact, if you are relatively young and have at least 20 or more years until retirement, a drawdown right now is exactly what you want!
During mid term election years, the return prior to the midterm elections (Nov 8, 2022 this year) was quite bad. Usually the “worst” during the 2nd quarter of the year (April thru June this year), and this year has delivered! Then leading into the midterms (around mid to late October), the markets rise quite a bit. On average, the 12 month period after the election, the average returns have been 16.3% with most of the gains coming right around the election thru the first half of the following year. Since 1962, there has never been one instance of the S&P500 having a negative return from election day, until the end of the year. *Past performance is not an indicator of future results*!
Markets are driven by (LARGE) buyers and sellers who don’t just push a button to buy or sell. They have to do their buying and selling over days, if not weeks! We regular people have the advantage of not playing such high stakes games and can sit thru the games. As long as you believe that people need a “place” to store “money” for “retirement”… this thing we call the stock market or “the markets” will probably be preserved to serve that function. It’s a social contract after all.
This is still one of my favorite videos from 1997: https://fellow401k.com/blog/frontline-in-1997-betting-on-the-market/
That generation lived thru the painful dot.com crash that lasted from 2000 to 2003. And now that generation is in power (i.e. Congress, Lobbying, etc). As the ending of the video says, “what would happen if we had a sustained bear market after a lot of the baby boomers had retired?” Interesting times, but my bet is that Millennials & Gen Z are a larger population than the Gen X dot.com bubble generation; and this may be deja vu all over again. However, our understanding of the “system” is different now. As long as “money” exists, averaging a portion of your savings into markets will probably be a good risk reward proposition when considered against the alternatives!
