Investors wonder how the federal election results will affect their investment, writes Peter Watson.
Investors have two questions. Who will win the federal election and how will this affect my investments?
We will look at the United States for some insight. It has a two-party system. Democrats are considered more socialistic and the Republicans more business friendly.
In Canada the Liberals and New Democrats are considered more like the Democrats and the conservatives more like the Republicans.
The US has close to a century of election/investment data to consider.
The stock market crash of 1929 started The Great Depression. Stock values declined and it took about a decade for stocks to regain their lost value.
During that period both political parties were in power.
In the early 1940s the stock market started on the relatively steady upward climb that continues today. There have been short-term periods of market corrections but when these are viewed in the context of eight decades, they seem relatively insignificant.
Since the 1920s there has been a change of political parties occupying the White House a total of 11 times. During those years the time in power has been shared by the Democrats and Republicans on a fairly equal basis.
You might expect the stock market would perform better when the pro-business Republicans were in power. Not so.
There is logic to this.
When you invest in the stock market you do not own political parties. You own businesses and all those businesses try and serve their customers and make a profit.
Will a political party influence business? Absolutely. But so will and endless number of other variables like the advancement of technology and other countries actions.
We are not implying how the Canadian market will be affected as a result of the election. It is a realization that by viewing the US experience, politics and stock market performance have not been related.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com
