Worried about what a Trump or Biden presidency will do to your 401(k)?

By Brett Arends

Don't let this turbulent election year wreck your finances

If you're worrying about what a Trump or Biden presidency would mean for the stock market, the bond market and your hopes for retirement, consider this.

Starting in 1936, if you had invested in the U.S. stock market in an election year and just left your money alone, reinvesting the dividends, after 10 years you'd have made an average return of 10.5% a year if a Republican had been elected president - and 11.2% if a Democrat had been elected.

So reports Matt Topley, the president of Lansing Street Advisors, a wealth-management firm and family office in Ambler, Pa. He cites the data in his latest note to investors.

Maybe which party wins the White House doesn't matter as much as we think. Yes, the numbers seem to give the Democrats a small edge. But it's too small to be meaningful. We are dealing with a small statistical sample. (These are also pre-inflation numbers.)

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For example, you would have done especially well over the following 10 years if you invested in 1952 (when Dwight D. Eisenhower, a Republican, was elected), 1980 and 1984 (Ronald Reagan, a Republican) and 1988 (George H.W. Bush, a Republican), Topley's numbers show. You also did really well if you invested in 1944 (Franklin Roosevelt, a Democrat), 1948 (Harry Truman, a Democrat) and 2012 (Barack Obama, a Democrat).

"The stock market doesn't care about the election as much as we do," says Will Kellar, a partner at Human Investing, a financial-planning firm in Lake Oswego, Ore. Good companies, he adds, "exhibit remarkable resilience in the face of constant change, including the turbulence brought about by presidential elections."

Ajay Kaisth, a planner in Princeton Junction, N.J., says that "while it may appear natural for investors to look for a correlation between who wins elections and markets, a long history of returns has shown that stocks have trended upwards through both Democratic and Republican presidencies."

Meanwhile, Leyla Morgillo, a planner at Madison Financial Planning Group in Syracuse, N.Y., says that election years are often marked by volatility - but that this tends to pass after the result.

"The first five months of election years have historically had lower average returns and higher volatility," she says. But "regardless of outcome, markets have tended to bounce back and return to an upward trajectory after ... the uncertainty is gone," she says. "For long-term investors, the political party that wins the White House has had little impact on returns."

Partisans this time may reply, sure, maybe that has been true in the past - but because of the stakes, "this time is different."

Cue laughter. The great investor Sir John Templeton, famously, once called those "the four most dangerous words in investing."

On Wall Street, this time always seems different.

Former President Donald Trump, who is widely expected to win the 2024 Republican presidential nomination, recently predicted that there would be a stock-market crash if Biden were re-elected. "I think there will be a crash if I don't win," he told a Fox News "town hall" event in Iowa.

But he said the same thing in 2020.

Over President Joe Biden's first three years in office, the S&P 500 SPX has generated total returns, after inflation, averaging 5.3% a year. By historical standards, that's mediocre. But it's hardly a crash.

Meanwhile, plenty said the same about Trump before 2016. Economists warned that a Trump victory would "tank the markets."

Indeed it did - for about six hours. Then it, well, boomed.

What will happen in the next term? Nobody knows. The smart money sticks to the plan.

-Brett Arends

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02-01-24 1103ET

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