U.S presidential elections historically haven't moved the stock market

The presidential election shouldn't influence how you invest, financial experts say Financial experts don't expect this year to be any different

US President Joe Biden and former US President and Republican presidential candidate Donald Trump participate in the first presidential debate of the 2024 elections at CNN's studios in Atlanta, Georgia, on June 27, 2024.Andrew Caballero-reynolds | Afp | Getty Images

Presidential election outcomes don't significantly affect market performance, but many investors still feel nervous about what this year's presidential matchup between President Joe Biden and former President Donald Trump could mean for their money.

More than half of investors (57%) surveyed by investment company Betterment said they are feeling anxious about the upcoming election and 40% expect to move or pull investments based on the election outcome.

Betterment polled 1,200 individual investors this spring across four generations: Gen Z, millennials, Gen X and baby boomers.

Financial experts, however, don't encourage making investment decisions for political reasons as markets tend to react to economic factors that politicians have no control over. Even in a contentious election year, they advise keeping a diversified portfolio and saving more instead of making money decisions based on politics.

"The economy keeps chugging along whether we have a Democrat or Republican in office, so to place big bets against one candidate winning over another is not a good investment strategy," said Cathy Curtis, a certified financial planner and founder of Curtis Financial Planning in Oakland, California.

Blending political opinions and portfolios

Curtis, who is a member of the CNBC Financial Advisor Council, said she has seen her clients express more confidence in the market overall this year. The Nasdaq Composite, S&P 500 and Dow Jones Industrial Average have continuously broken records in 2024.

"We've got a very stable market," Curtis said. "People realize that. I get no anxious emails or even questions [from clients] about the market. In really volatile years, people really pay attention to when things go down."

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Still, a few clients visiting Curtis have expressed concerns about the idea of Trump winning the election. 

She attributes the political anxiety she's seen more of in recent years to a rise in polarization — but she encourages her clients not to move their money in response to these feelings.

"Most of my clients are scared to death of another Trump presidency," Curtis said. "So that creates a lot of anxiety around investing, but most of my clients are educated people. Once you show them the facts, they tend to calm down."

But it is becoming more common for investors to blend their political opinions with their portfolios according to Dan Egan, vice president of behavioral finance and investing at Betterment. Egan is seeing investors altering their portfolios because they believe a candidate will influence the economy or stock market more now than they have during election years in the past.

Despite this change in investor behavior, he said the outcome of presidential elections hasn't historically affected the stock market in a significant way.

Dating back to 1928, the S&P 500 has returned an average 7.5% in presidential election years, compared to an average 8% in non-election years, according to a March analysis from J.P. Morgan Private Bank.

"Regardless of who you look at, be it Democrat or Republican or whoever, the stock market goes up on average," Egan said. "There's not a big impact to, especially the president, in terms of what they can do to the economy, to things like inflation. This is why we have checks and balances and separations in terms of the Federal Reserve, and so on."

Considering the potential impacts of the election, 29% of investors surveyed by Betterment said they planned to increase holdings in savings accounts.

Experts say that having a cash reserve can be smart given current high rates on savings accounts and other low-risk investments, but caution investors from keeping too much on the sidelines and out of the market.

"Right now you can get really good rates on your money, so I encourage people to hold bigger cash reserves," Curtis said. "If they don't want to put everything into the market, it's okay."

This story originally appeared on: CNBC - Author:Genna Contino