David Booth in MarketWatch: ‘Vote With Your Ballot, Not Your Life Savings’


This is the 14th U.S. presidential election in which I’ve been eligible to vote. In the middle of a pandemic, it’s certainly different from the first 13. But one way it’s similar is that people always ask me if they should change their investment strategy depending on whether the Democrats or Republicans win. My quick answer is: Vote with your ballot, not your life savings.

I’m not changing my investment strategy based on the presidential election outcome. That’s one of the great perks about being a long-term investor who thinks in decades and not days.

How did I come to this conclusion? It all starts with the data. The firm I co-founded, Dimensional Fund Advisors, looked at the last 95 years of stock returns (all the way back to President Calvin Coolidge). The data show that capturing the long-term returns of the capital markets has not depended on which party controls the White House.

Now I am not saying Coolidge, Hoover, Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush, Clinton, Bush II, Obama, and Trump didn’t each impact the economy and markets in their own ways. Historians will argue about how and how much. But when we ran the data, we couldn’t find evidence that would point to an investment choice you should make based on which party wins. I like to make decisions based on what the data show. There’s nothing in the data compelling enough to cause you to make changes in your investment portfolio based on the outcome of elections.

This makes sense when I think about it. A president doesn’t sit in the Oval Office and run the economy. Four to eight years is a short period of time when it comes to investing. What really counts long-term is American ingenuity—products and services that solve problems. Over decades, it’s American innovation that succeeds, no matter what politicians do.

That sounds great to me. The year 2020 has had too much stress for most folks. I’m glad people don’t have to make investment decisions based on who wins the presidency. Instead, I want people to have an investment philosophy they can stick with. If they focus on controlling what they can control, and taking the right amount of risk, they can make it through the tough times, and capture the rewards of the good ones.

In times of uncertainty, it’s important to remember that markets deal really well with new information. Markets are where buyers and sellers come together to voluntarily transact in real time. So they offer continuity in times of flux.

I think about investing as supporting the people and companies that are trying to improve our lives—by solving problems, improving efficiency, looking at old ideas in new ways. I don’t know which company is going to be the next big thing. That's why I encourage everyone to own a broadly diversified portfolio. I also want people to talk to a financial adviser who can help them understand their goals and their level of risk to give them the best chance of winning, whatever winning means to them. I want them to remember that the U.S. market isn’t a reflection of who’s president, but of the ingenuity of the American people.

When I look at that 95 years of data, I conclude that for the most part, the sooner I’d put money into the market and left it there, the better off I’d be today. Imagine if you could have invested during the Coolidge administration—right before the Great Depression—and then left your money in the market until today. Despite lots of ups and downs, I’m pretty sure you would be happy with those returns. (One dollar would have turned into about $4,000.) That’s the power of the long-term investor who thinks in decades, not days.

And that’s how I’m going to invest going forward—no matter who the president is.

Originally published in MarketWatch.


Disclosures

David Booth is founder and executive chairman of Dimensional Fund Advisors and a trustee of the University of Chicago, whose Booth School of Business is named after him.

Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP.

In US Dollars. Diversification does not eliminate the risk of market loss.

Growth of wealth shows the growth of a hypothetical investment of $100 in the securities in the Fama/French US Total Market Research Index. Growth of wealth for the full sample from March 4, 1929, through June 30, 2020. Growth of wealth for each presidential term starts on the election day of each president up to but not including the election day of a successor. For presidents who are not initially elected, the growth of wealth period starts from the day of inauguration up to but not including the successor’s election day. US Government Presidential and Congressional data obtained from the History, Art & Archives of the United States House of Representatives. US Senate data is from the Art & History records of the United States Senate. Data presented in the Growth of Wealth chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment.

Stock returns represented by Fama/French Total US Market Research Index, provided by Ken French and available at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.

This value-weighed US market index is constructed every month, using all issues listed on the NYSE, AMEX, or Nasdaq with available outstanding shares and valid prices for that month and the month before. Exclusions: American depositary receipts. Sources: CRSP for value-weighted US market return. Rebalancing: Monthly. Dividends: Reinvested in the paying company until the portfolio is rebalanced.

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