What thoughtful investors do when the volume rises
Turn on the television. Open social media. Spend five minutes scrolling the news. Within moments, you’ll discover that this election is the most consequential in American history, that this policy proposal will bring prosperity or ruin, that today’s market move happened because of politics—an explanation that may or may not survive until tomorrow.
Every election year, the volume rises. And every election year, investors ask the same question: Should I do something?
The answer to that question doesn’t depend upon who wins. Politics dominates attention this time of year not because it’s the most important thing happening in your portfolio, but because it’s the loudest and most pervasive thing in our national conversation. Job number one for politicians and pundits is raising the stakes as high as possible, so of course election season is noisy. Learning to distinguish the signal from the noise may be the single most valuable skill an investor can develop.
Our Brains Love Political Stories
Political stories are designed to capture our attention and spur us to action. The most effective political messages are the ones that trigger the strongest emotional response. Our brains are wired to notice threats and tribal dynamics, skills that once kept small groups of humans alive. Political narratives attach to identity, not just opinion, which is why they stop feeling like information and start feeling deeply personal. Where markets rarely offer certainty, political commentary offers it constantly, creating a comfort our brains prefer to the honest discomforts of probability.
None of this makes political coverage wrong. It makes it compelling, which is a different thing entirely. What investors should strive to remember is that the correlation between election results and market returns is best described as weak.
The most rigorous data point that supports this description comes from U.S. Bank’s analysis going back to 1948, which used a formal statistical test (a t-test) to check whether party control of the White House and Congress has a measurable effect on S&P 500 returns. The result contradicted conventional wisdom that a single-party “sweep” of the presidency and Congress is most likely to disrupt markets. Historically, there’s been no statistically significant relationship between single-party control and market performance.
Interestingly, the study did find three specific divided-government scenarios with a statistically significant relationship to returns, but that’s a narrower and more surprising finding than “elections drive markets,” and if anything it undercuts the simple partisan narrative further.
Here are those scenarios: a Democratic White House and a Republican Congress have positive returns above the long-term average, and a Democratic White House and a divided Congress also have positive returns above the long-term average. The combination of a Republican White House and a Democratic Congress showed positive returns, but modestly below the long-term average. Note that the returns are positive in all scenarios.
Academic literature in the Economics Observatory, citing a paper by Bialkowski et al (2008) on election-period volatility, backs this up from a different angle: over the longer term, which party holds power seems to make a limited difference to how publicly listed shares perform, even though the run-up to an election reliably increases short-term volatility.
It’s not that elections don’t matter to markets at all; it’s that the volatility is temporary, while the outcome-driven return differences are weak and don’t persist. This is the big takeaway: market timing and avoidable tax events are much more destructive to returns than election results.
Action Feels Like Control
Markets have delivered positive long-term returns under Republican administrations, Democratic administrations, divided government, and sweeping mandates alike. Markets don’t run on elections—they run on earnings, innovation, and the ordinary economic behavior of hundreds of millions of people who show up to work regardless of who holds office.
This isn’t an argument that politics is irrelevant. Policy matters, sometimes a great deal, to specific sectors and specific plans. It’s an argument that market direction and election outcomes are far more loosely connected than the coverage and spin suggests, and that the historical record, not the headline cycle, is the more reliable guide.
If the data suggests staying the course, why does “doing something” feel so tempting? Because reacting feels like control, which we’re wired to want. However, the cost of that feeling is well documented. DALBAR’s long-running research on investor behavior shows the average investor earns meaningfully less than the funds they’re invested in, not from picking bad investments, but from buying and selling at the wrong moments, driven by emotion rather than plan.
Election years have their own version of this problem. Investors who moved to cash ahead of a “consequential” election, waiting for clarity that never quite arrives, have historically paid a real price, not in a single bad quarter, but in the compounding years spent on the sidelines while markets moved on without them. The mistake is rarely the initial decision. It’s the emotional trigger behind it.
Family Office Thinking
None of this means ignoring politics is a good idea. Family offices don’t ignore politics; they put it in its proper place. Tax policy changes? Plan for it. Estate law shifts? Plan for it. Regulatory change? Plan for it, deliberately, on a deliberate timeline. Selling everything because of a poll or a debate? Never.
The families who build lasting wealth are rarely the ones who called an election correctly. They’re the ones who had a strategy sound enough that the outcome never required a change of course.
Every election season introduces a new version of an old risk. Not market risk, not credit risk, but headline risk: the risk that an investor makes a permanent financial decision in response to a temporary political emotion. It doesn’t show up on a balance sheet. It shows up years later, in the gap between the returns a portfolio earned and the returns an investor actually kept.
The antidote isn’t apathy. It’s holding two things at once: staying informed, and refusing to let information masquerade as instruction. Don’t confuse urgency with importance, and don’t let the noise drown out the signal.
If you’d like a clearer picture of your own financial field, our complimentary Taxes First, Then Math™ analysis is a natural place to begin.
