On 5 November 2024, it was announced that Donald Trump would be returning to the White House for a second term in office. The former President won the 2024 US election with 277 electoral votes against the current Vice President Kamala Harris. The outcome of this election will shape international trade and the global economy for several years to come. So why does this matter for your pension savings?
Keep reading to find out what the result of the 2024 US election could mean for your pension.
Why are UK pensions invested so heavily in US companies?
Most pensions are diversified across a range of locations and asset types, including in the US. This means your retirement savings could be invested in company shares, bonds, cash, property and other assets in the region, depending on the plan you’ve chosen. Many UK pensions invest heavily in US companies because they’re some of the biggest - and in recent years most profitable - companies in the world. These include the big players in the technology sector, known as the ‘Magnificent Seven‘.
Magnificent Seven
The ‘Magnificent Seven’ comprises Apple, Microsoft, Amazon, Alphabet (Google’s parent company), Nvidia, Meta (Facebook’s parent company), and Tesla. These companies make up the top 10 holdings in most of our PensionBee plans.
You can measure how much a company is worth by ‘market capitalisation’, which is based on the current share price and the number of outstanding shares. Together, the ‘Magnificent Seven’ make up more than 29% of the S&P 500’s total valuation.
As you can see, these companies have a combined value of over $13 trillion. In comparison, the biggest FTSE 100 company is oil and gas giant; Shell, which has a market capitalisation of just over £180 billion. Even combining the values of the seven largest FTSE 100 companies, those companies only reach £738 billion.
US versus UK markets
The US stock market holds a significant presence in global indices, which track the total value of many publicly listed companies around the world. This is because a big portion of the world’s most valuable companies have headquarters in the US and are listed on US stock markets.
10-year performance
Ultimately, the aim of pension investing is to generate positive returns over the long term so that pension savers can enjoy a happy retirement. It’s important to remember that with pension saving, you may have decades ahead of you to ride out multiple cycles of market volatility and benefit from compound interest.
Over the past decade the FTSE 100 has grown 17%, compared to the S&P 500’s impressive 154% return. Investing in US companies allows UK pension funds, such as those which PensionBee plans are invested in, to benefit from this growth and potentially achieve higher returns for pension savers.
Do election years impact US company shares’ performance?
Since 1928, the S&P 500 has generated a positive return in around 75% of US election years. This means that US elections don’t necessarily translate to negative stock market performance of US companies. In most cases the opposite is true.
As you can see in the graph above, the S&P 500 has experienced positive returns in the majority of election years since 1928. The six election years where the S&P 500 did have a negative return were:
- Franklin D. Roosevelt’s first election in 1932, during the Great Depression;
- Roosevelt’s third election in 1940, at the start of World War II;
- Harry S. Truman’s first election in 1944, at the end of World War II;
- John F. Kennedy’s first election in 1960, during a short-lived US recession;
- George W. Bush’s first election in 2000, during the early 2000s recession; and
- Barack Obama’s first election in 2008, during the Global Economic Crisis.
In most of these election years, the incoming US President was facing a climate of global financial difficulties.
Overall, based on historical experiences, US election years can be positive for stock market performance and ultimately for your pension pot. Just bear in mind that past performance isn’t a guarantee of future returns and the value of your pension could go down as well as up.
Summary
While the result of the US election might be grabbing the headlines, pension savers shouldn’t lose sight of the bigger picture. Your pension is a long-term investment and usually continues to grow through elections. The long term nature of your pension gives you plenty of time to top it up, track its progress and plan for your retirement.
Making regular contributions to your pension is a good way to benefit from any potential market volatility around elections, as you’ll buy company shares at their lowest and highest prices over time without needing to worry too much about timing your investments.
Have a question? Get in touch!
Do you want to know more about your pension plan with PensionBee? You can check out our Plans page to learn how your money is invested in different assets and locations, or log in to your BeeHive to see your specific plan. You can always send comments and questions to our team via engagement@pensionbee.com.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
