You may have heard that the Social Security Administration officially announced that Social Security recipients will receive a 1.6% cost-of-living (COLA) adjustment for 2020. Those increased payments will start in January 2020. The purpose of the COLA is to help the purchasing power of Social Security benefits keep pace with inflation. Congress first enacted the COLA provision as part of the 1972 Social Security Amendments, with automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation.
Atlanta Financial Blog
Will the Midterm Election Results Cause a Major Market Move? History Says Otherwise
With news from the White House and Congress peppering the landscape continually, and the media covering midterm elections that historically might have gotten much less attention, investors are likely wondering, “Will the outcome of the midterms—whatever it is—influence my portfolio?”
The short answer is “probably not,” for several reasons we’ll discuss below. In a nutshell, historical analysis shows that other factors have far more impact on the stock and bond markets than elections.
Election cycle influence. Is it real?
Analysts have examined this issue under a microscope for more than a century, and there is little definitive evidence, either way, for elections having significant influence on the market. Regarding midterms, specifically, the Wells Fargo Investment Institute analyzed the S&P 500 back to 1962 and found that, on average, during midterm cycles stocks see a pullback of around 19% before the election and a rebound of more than 31% afterward.
However—and this is important to note— these average losses and gains happen no matter what the outcome is, or which parties gain or lose seats.
The analysts ascribed the fluctuation to uncertainty, not politics. “It does not matter which party was in charge before or after the midterm election. The removal of uncertainty and of constant media attention allows markets to resume focusing on fundamentals,” noted analyst Craig Holke in the report.
The true market indicators.
According to research by the investment education website Investopedia, “Confidence in the stability of future investments plays a large role in whether markets go up or down.” Events that cause extreme uncertainty, and that Investopedia’s research found play a greater role on the stock market than elections, are:
- Wars or other conflicts
- Concerns over inflation or deflation
- Government fiscal and monetary policy
- Technological changes
- Natural disasters / extreme weather fluctuations
- Corporate or government performance data
As many of us may remember, the largest single-day decrease (7.1%) in the history of the Dow Jones Industrial Average (DJIA) occurred on September 17, 2001. This move is largely attributed to the September 11 terrorist attacks in the United States, which created a lot of uncertainty about the future.
Of course, each election cycle is different, and world and local politics are particularly tumultuous right now. Nothing is set in stone due to—you guessed it—uncertainty. In the final analysis, uncertainty is perhaps the greatest driver of market moves, and it’s one that investors can largely overcome with a sensible investment strategy.
Astute investors succeed by embracing two key realities of the market:
- Paying attention to the fundamentals of growth, earnings and valuations is a winning strategy; scrutinizing the daily news for clues to market shifts is not.
- Taking a long-term view of investments has been proven to pay off, time and time again.
To repeat an oft-cited quote, “Investing should be like watching paint dry or watching grass grow. If you want excitement…go to Las Vegas.”
The foregoing content reflects the opinions of Atlanta Financial Associates, Inc. and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.
The holidays are the perfect time to express our thanks for your business and to think about those less fortunate. Please join us for our 11th Annual Holiday Open House and Toys for Tots Collection on Thursday, December 12, 2019, 11:30 am – 1:30 pm at our office – 5901-B Peachtree Dunwoody Road, Suite 275, Atlanta, GA 30328. Lunch will be served.
All of us at Atlanta Financial want to congratulate Harrison Fant on recently passing his five year anniversary at Atlanta Financial in September. Since joining AFA in 2014, Harrison has rapidly ascended through the different positions to his current position as Wealth Manager. Harrison has a unique combination of technical financial planning skills and the ability to present those complex concepts in easily understandable ways to all of his clients.
In working with my retired or soon-to-be retired clients, perhaps the most frequent question I am asked is “What is the best way to withdraw from my investment and retirement accounts in retirement in order to provide me my desired retirement income?” I believe they ask me this question because many of them have investments in a mix of different accounts with varying tax characteristics such as taxable investment accounts, IRAs, 401k or retirement plan accounts, Roth IRAs, and possibly real estate investments such as rental property. In addition to that, they may also have retirement income coming in from multiple sources and at different times such as Social Security income, pension income, and deferred compensation. If you are interested in increasing what you can spend in retirement and reducing the impact taxes have on your retirement nest egg, it is important to have a multi-year retirement income plan that takes into account the impact taxes will have on both your retirement income sources, and the withdrawals you take from your different investment and retirement accounts.