Education >> Investing Your Money

Stock Market Returns by Presidential Party

October 24, 2008

A recent chart in The New York Times shows returns since 1929 on $10,000 invested in the stock market, but only during the administrations of either Democratic or Republican presidents.

However, based on analysis using Mathematica software:

The NYT’s method gives each president credit from the first day of his administration to his last. It ignores the fact that the market is a leading economic indicator, meaning the performance near the end of each administration could more properly belong to the successor rather than the incumbent. If you adjust for this, the results are:

Second, it ignores dividends. If you reinvested them, the results would be:

Third, it ignores inflation. If you reduce returns based on the real cost of money, the results would be:

Fourth, it starts in 1929. That’s arbitrary. If you started in 1933:

Obviously, you can get any result you want by changing the variables. What’s most important, though, is this: If you started in 1929 and remained invested the entire time, you’d have $3,388,713. The message is clear: You get the greatest profits when you buy, hold, and reinvest -- regardless of who’s in the White House.

The above illustrations are hypothetical and don’t represent the return of any specific investment. Results, which are based on a number of assumptions as noted above, do not reflect any deduction for taxes or fees and are based on historical returns of the S&P 500 Stock Index, which is an unmanaged index generally considered representative of the U.S. stock market. Investors cannot invest directly in an index. A buy-and-hold strategy does not guarantee profits; no investment strategy can. Past performance is no guarantee of future results.

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