Worries

Election Outcomes, Volatility, and Asset Allocation

November 2024

If you reside in a swing state or have a cell phone number that is from a swing state, you may be hoping that election season soon ends to put a stop to the text and robocall onslaught. Regardless of where you live, there is a high level of anxiety around the election results. This fear and uncertainty is happening in a lot of locales and along the entire political spectrum. We have good news for you. According to the Schwab Center for Financial Research using information from Morningstar, large cap U.S. stocks have ended every presidency since John F. Kennedy higher than when the president took office with one exception. The lone miss was George W. Bush. George W. came into office in 2001, prior to the September 11th attacks and exited in 2009 during the global financial crisis. Whatever you feel about his policies and leadership, his timing was not great. Our prediction is that the next president will not ruin democracy, and that the country will survive.

There are always going to be reasons for concern and reasons for hope in the market. The causes could be geopolitical, valuations, monetary policy, or others. Over short periods of time, risk assets can disappoint investors, but over the longer term, they have proven to be quite steady. The chart above illustrates the real returns (adjusted for inflation) of the S&P 500 since 2000 over two different rolling periods, 10-years and 25-years¹. It should not come as a surprise to students of the market that 25-year rolls have less variability than do 10-year rolls because they encompass more market cycles. What might come as a surprise to some is just how smooth the real return of the S&P 500 over 25-year rolls has been since 2000, almost exclusively between 5% – 10% annually. This period includes a lot of good and a lot of bad times for investors over those years.

It is difficult for investors to focus on such long-term results. 25 years is a long time, and the media is itself more profitable if investors think in 25-second increments rather than in decades. In reality, 25-year snapshots are less than half of most individual investors’ time horizons and mere blips along the perpetual lifespan of long-term institutional assets.

If anything on this chart causes us pause, it is that the recent 10-year rolls look swollen compared to those of the past two decades. One could argue that reversion to the mean could be coming to the markets. Have recent returns robbed the future of lofty return possibility? It could turn out that way, but we do not see the trigger for that lower return environment to be politically motivated. If it happens, it will likely be about a concern we have now that we are not putting great weight on, or more probably it will be a concern that the market does not yet see as a weakness.

This is our long-winded way to tell you that for all of the feelings this election (or any other unknown) cause for you, if you are comfortable with the long-term allocation of your portfolio, you should turn off the news and your investment apps for a couple of weeks. We are expecting some heightened volatility, but investing is not gambling. It is not a defined outcome where you either win or lose. It is a process in which as you allow your feelings to impact your decision making, you are creating unnecessary complexity in your life because if you choose to sell now, you will eventually need to choose a time to reinvest in the future. Investing becomes less frantic and more enjoyable if you identify your time horizon and utilize that to make portfolio decisions.

¹ A rolling period represents your annualized return if you invested at the beginning of that time frame and held the investment for the entire time period. For example, a 10-year roll ending in 2000 implies that the investment was made in 1990 and held through 2000. The first data point for the 25-year roll in the graph is for the period 1975 – 2000.

This report was prepared by Cornerstone Advisors Asset Management, LLC / Cornerstone Institutional Investors, LLC and reflects the current opinion of the firm, which may change without further notice. This report is for informational purposes only and is not intended to replace the advice of a qualified professional. Nothing contained herein should be considered as investment advice or a recommendation or solicitation for the purchase or sale of any security or other investment. Opinions contained herein should not be interpreted as a forecast of future events or a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Investors cannot invest directly in an index. Commentary regarding the returns for investment indices and categories do not reflect the performance of Cornerstone Advisors Asset Management, LLC / Cornerstone Institutional Investors, LLC, or its clients. Historical performance results for investment indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Figures contained herein are obtained from sources deemed reliable, but we do not guarantee its accuracy or completeness. Past performance is no guarantee of future results. Investments fluctuate in value. Securities Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services are offered through Cornerstone Advisors Asset Management, LLC. Cornerstone Advisors Asset Management, LLC and Cornerstone Institutional Investors, LLC are independently owned and operated. 7234282.1