History Says This Investing Strategy Has Never Failed After a Midterm Election
The best move is often no move at all.
The midterm elections have concluded, and Democrats are set to assume control of Congress from the Republicans in January. This shift in political power is expected to bring increased uncertainty and volatility to the stock market, particularly in relation to the artificial intelligence (AI) sector. Investors are concerned that stricter scrutiny may be placed on this industry, which has been fueled by significant capital investments from hyperscalers.
However, the data shows that this type of political upheaval has never caused the stock market to underperform after a midterm election.
Since 1980, the S&P 500 index (^GSPC -0.35%) has consistently delivered a positive total return over the 12 months following a midterm election, with an average gain of 13.7%. This record holds true regardless of whether Congress is controlled by Democrats or Republicans. The key takeaway is that investors should resist the urge to make drastic changes to their portfolios based solely on election outcomes.
History demonstrates that staying invested in the stock market is the optimal strategy for long-term financial success.
Rather than altering investment strategies, investors should focus on identifying high-quality businesses with strong balance sheets and durable growth potential. Valuation is also important, and purchasing stocks at a margin of safety can help mitigate risk. For those who prefer a low-maintenance approach, investing in an S&P 500 tracker like the Vanguard S&P 500 ETF (VOO -0.34%) provides instant exposure to the largest and most influential companies in the U.S. economy.
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