By Taylor K. Ranker II, CEO & Personal CFO, Questmont Virtual Family Office
One of the most harmful, yet pervasive, myths investors face is the belief that the outcome of the next presidential election is critically important to the stock market. Every presidential election leads many investors to make short-term decisions, based on the overwhelming political information flooding our daily lives.
We encourage you to take a breath, calm your mind from anxiety and fear, and remember that you are a long-term, rational investor who has survived and prospered over many years and many presidential elections. Still skeptical? Here are some statistics we’ve witnessed over time.
In the modern era of the S&P 500 Index, from 1961 through 2023, staying invested has delivered a 10-fold return, compared with attempting to time the market based on who is in the White House. Since 1928, the S&P 500 Index has not only performed positively in election years but has also shown higher returns after a new president is elected, compared with when an incumbent president is re-elected. One final statistic of interest: value stocks have outperformed growth stocks by an average of 3.5% in the six months following every presidential election, over the past 40 years.
To quote Charlie Munger: “The first rule of compounding is never to interrupt it unnecessarily.” A rational, long-term investor might conclude that it doesn’t matter much who the president is; the equity market has historically risen most of the time, regardless of who occupies the White House. The best course of action is to remain invested.
Based on the election results, here are some of the major tax proposals President-Elect Donald Trump will likely consider implementing.
With the impending sunset of the Tax Cuts and Jobs Act (TCJA), Trump is looking to extend or make permanent most of its provisions. The individual tax provisions of the TCJA would be made permanent, except for the cap on state and local taxes (SALT). Business tax provisions, such as bonus depreciation, would be restored. Estate tax provisions would remain in place, a significant factor for business owners planning an exit in the near future.
The corporate income tax rate would decrease from 21% to 20%, with a further reduction to a 15% rate through the reinstitution of the Domestic Production Activities Deduction (DPAD) for companies manufacturing products in the United States. Individual income tax rates would remain (subject to annual adjustments) as part of the TCJA’s permanence.
Proposals also include tariff hikes, such as a universal 20% tariff on all U.S. imports and a 60% tariff on certain goods from China, along with in-kind tariffs on U.S. exports to China.
At this moment, we are navigating political turmoil and cannot avoid all the noise. Regardless of the election results or potential tax policy changes, we hope you can free your mind from worry about your long-term investment strategy. This should be reassuring, knowing that investors who stay the course have little to fear.
History has proven that presidential elections have a negligible impact on long-term markets. Great companies will continue to thrive, mainstream equities have been positive the majority of the time over the past century, and avoiding interruptions has delivered significantly greater returns with less worry and anxiety.
