Markets in a Minute
U.S. Dollar Performance After U.S. Elections
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U.S. Dollar Performance After U.S. Elections
News outlets often draw correlations between U.S. elections and market performance. In turn, some investors opt for more conservative portfolios until the election uncertainty is overcome. But how much influence do elections really have?
In this Markets in a Minute from New York Life Investments, we show U.S. dollar performance after U.S. elections to illustrate that there is no clear trend between the two.
What is the U.S. Dollar Index?
To start, we used the U.S. Dollar Index to track performance, which measures the U.S. dollar relative to a basket of six currencies.
| Currency | Weight |
|---|---|
| Euro | 57.6% |
| Japanese Yen | 13.6% |
| British Pound | 11.9% |
| Canadian Dollar | 9.1% |
| Swedish Krina | 4.2% |
| Swiss Franc | 3.6% |
Source: Intercontinental Exchange
Any changes in these respective currencies can affect the performance of the U.S. dollar.
Post-Election Performance
For each U.S. election from 1988 to 2016, we calculated the U.S. dollar index’s percentage change since election day. Changes were tracked over the course of a year, or 250 trading days.
There was no clear trend in U.S. dollar performance after U.S. elections. Here’s another look at the data, this time showing the range in changes over the year and percentage change at the end of the period.
The U.S. dollar finished up in four years, and down in the other four years. The years after the 1988, 1996, and 2008 elections saw the largest fluctuations in values.
In 1989, the U.S. dollar surged due to three factors:
- High interest rates, which attracted foreign investment
- Political instability in West Germany and Japan
- Strength of American stock and bond markets
In the period after the 1996 election, the dollar climbed again. While foreign currencies collapsed amid the Asian financial crisis, the U.S. economy enjoyed rapid growth and was seen as a safe haven for investors.
On the flip side, the U.S. dollar saw significant declines in the year after the 2008 election. The European Central Bank lowered rates in response to the global financial crisis, raising confidence in the euro and causing the U.S. dollar to fall.
What Investors Can Focus On
In each case above, significant movements were caused by macroeconomic factors, rather than the outcome of the U.S. election.
Here are a few factors that can have a direct impact on market performance:
- Inflation decreases the value of a dollar over time. Investors should consider how prevailing interest rates compare to inflation, and look for assets that build wealth over time.
- Unemployment rates have widespread impact. When unemployment is high, economic output and consumer spending are reduced.
- Economic growth signals healthy demand, and may boost corporate profits and drive up asset prices.
While elections can cause investors to change their asset mix, it’s important for investors to focus on long-term, broader factors that directly influence the market.
Markets in a Minute
The Average American’s Financial Portfolio by Account Type
From retirement plans to bank accounts, we show the percentage of an American’s financial portfolio that is typically held in each account.
The Average American’s Financial Portfolio by Account Type
Where does the average American put their money? From retirement plans to banks, the typical financial portfolio includes a variety of accounts.
In this graphic from Morningstar, we explore what percentage of a person’s money is typically held within each account.
Breaking Down a Typical Financial Portfolio
People put the most money in employer retirement plans, which make up nearly two-fifths of the average financial portfolio. Bank accounts, which include checking, savings, and CDs, hold the second-largest percentage of people’s money.
| Account Type | % of Financial Portfolio |
|---|---|
| Employer retirement plan | 38% |
| Bank account | 23% |
| Brokerage/investment account | 14% |
| Traditional IRA | 10% |
| Roth IRA | 7% |
| Crypto wallet/account | 4% |
| Education savings account | 3% |
| Other | 1% |
Source: Morningstar Voice of the Investor Report 2024, based on 1,261 U.S. respondents.
Outside of employer retirement plans and bank accounts, the average American keeps nearly 40% of their money in accounts that advisors typically help manage. For instance, people also hold a large portion of their assets in investment accounts and IRAs.
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Account Insight for Advisors
Given the large focus on retirement accounts in financial portfolios, advisors can clearly communicate how they will help investors achieve their retirement goals. Notably, Americans say that funding retirement accounts is a top financial goal in the next three years (39% of people), second only to reducing debt (40%).
Americans also say that building an emergency fund is one of their financial goals (35%), which can be supported by the money they hold in bank accounts. However, it can be helpful for advisors to educate clients on the lower return potential of savings accounts and CDs. In comparison, advisors can highlight that investment or retirement accounts can hold assets with more potential for building wealth, like mutual funds or ETFs. With this knowledge in mind, clients will be better able to balance short-term and long-term financial goals.
The survey results also highlight the importance of advisors staying up to date on emerging trends and products. People hold 4% of their money in crypto accounts on average, and nearly a quarter of people said they hold crypto assets like bitcoin. Advisors who educate themselves on these assets can more effectively answer investors’ questions.
Markets in a Minute
5 Factors Linked to Higher Investor Engagement
Engaged investors review their goals often and are more involved in decisions, but which factors are tied to higher investor engagement?
5 Factors Linked to Higher Investor Engagement
Imagine two investors. One investor reviews their investment goals every quarter and actively makes decisions. The second investor hasn’t reviewed their goals in over a year and doesn’t take part in any investment decisions. Are there traits that the first, more involved investor would be more likely to have?
In this graphic from Morningstar, we explore five factors that are associated with high investor engagement.
Influences on Investor Engagement
Morningstar scores their Investor Engagement Index from a low of zero to a high of 100, which indicates full engagement. In their survey, they discovered five traits that are tied to higher average engagement levels among investors.
| Factor | Investor Engagement Index Score (Max = 100) |
|---|---|
| Financial advisor relationship | Don’t work with financial advisor: 63 |
| Work with financial advisor: 70 | |
| Sustainability alignment | No actions/alignment: 63 |
| Some/full alignment: 74 | |
| Trust in AI | Low trust: 61 |
| High trust: 74 | |
| Risk tolerance | Conservative: 62 |
| Aggressive: 76 | |
| Comfort making investment decisions | Low comfort: 42 |
| High comfort: 76 |
Morningstar’s Investor Engagement Index is equally weighted based on retail investors’ responses to seven questions: feeling informed about composition and performance of investments, frequency of investment portfolio review, involvement in investment decision-making, understanding of investment concepts and financial markets, frequency of goals review, clarity of investment strategy aligning to long-term goals, and frequency of engagement in financial education activities.
On average, people who work with financial advisors, have sustainability alignment, trust AI, and have a high risk tolerance are more engaged.
The starkest contrast was that people with high comfort making investment decisions have engagement levels that are nearly two times higher than those with low comfort. In fact, people with a high comfort level were significantly more likely to say they were knowledgeable about the composition and performance of their investments (84%) vs. those with low comfort (18%).
Personalizing Experiences Based on Engagement
Advisors can consider adjusting their approach depending on an investor’s engagement level. For example, if a client has an aggressive risk tolerance this may indicate the client is more engaged. Based on this, the advisor could check if the client would prefer more frequent portfolio reviews.
On the other hand, soft skills can play a key role for those who are less engaged. People with low comfort making investment decisions indicated that the top ways their financial advisor provides value is through optimizing for growth and risk management (62%), making them feel more secure about their financial future (38%), and offering peace of mind and relief from the stress of money management (30%).
A New Framework for Personalized Financial Portfolio Alignment
The Average American’s Financial Portfolio by Account Type
5 Factors Linked to Higher Investor Engagement
The Top 5 Reasons Clients Fire a Financial Advisor
The Top 5 Reasons Clients Hire a Financial Advisor
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