How do changes in political power impact long-term investment returns?

In 2020, Democrats claimed a majority in both the House of Representatives and Senate, giving the party control of the White House and both chambers of Congress for the first time since 2009. The upcoming election opens the potential for this to change, with all 435 seats in the House of Representatives and 35 Senate seats up for grabs this year. With less than one month until election day, Republicans remain favored to assume a majority in the House, with control of the Senate still looking like a toss-up.

Political uncertainty can be a source of short-term volatility for equity markets, but it’s important for investors to keep a long-term perspective. As shown above, the stock market has seen strong returns over time, under both unified and divided governments. If untouched, a $1,000 investment in the S&P 500 index in 1936 would have been worth roughly $5 million today. Moving to the sidelines in response to political winds of change in Washington, D.C. would have significantly limited that growth potential. Staying invested over time paid off, regardless of which party was in power or whether control of the executive and legislative branches was split.

Of course, swings in the political climate and meaningful policy changes can affect the capital markets at times. Still, history tells us that their impact on long-term performance tends to be relatively insignificant.

The bottom line? Elections may be a source of anxiety for voters, but history suggests the best course of action for investors is to tune out the noise. Remaining invested through political uncertainty and sticking to a long-term investment plan regardless of the balance of power in Washington has been a winning strategy over the long term.