Election season is typically a time of brightly colored yard signs, heated debates, countless television ads, and… market jitters. Every electoral cycle raises the burning question “How will this impact my investments?” Let’s unpack the intricate relationship between politics and your portfolio.
Elections are emotionally charged events. The thrill of supporting a candidate, the anxiety of unpredictable outcomes, and the sheer volume of information can feel overwhelming. Often, these emotions spill over into our investment decisions, prompting some to make impulsive moves based on the political mood of the day.
It is not just folklore: Markets do exhibit short-term volatility during election years. Uncertainty reigns supreme, and as we know, markets dislike unpredictability. However, a look into history reveals an enlightening pattern – over the long run, markets have consistently grown irrespective of political affiliations and election outcomes.
While certain sectors might be more sensitive to specific policy changes promised during campaigns (think healthcare, energy, or defense), the broader market tends to be resilient. For instance, since the 1930s, the S&P 500 has shown positive returns in most presidential election years regardless of which party emerged victorious.
What factors underpin this resilience? Markets are influenced by an array of factors beyond politics: global economic shifts, technological innovations, interest rates, corporate earnings, and even natural disasters. No single event, not even an election, dictates market trajectories entirely.
Stock markets also tend to be forward-looking. While they may react to immediate uncertainties, they adjust relatively quickly as clarity emerges after elections. Investors and businesses adapt to new policies and strategies, keeping the economic machinery moving.
So, what can investors do to shake off their election season Jitters?
- Stay calm, stay invested: History indicates that a buyand- hold strategy often yields better results than attempting to time the market based on electoral predictions. Market timing can be perilous, creating the potential for missed Opportunities.
- Diversify, diversify, diversify: A well-diversified portfolio acts as a buffer against unpredictable market movements. By spreading assets across various sectors and regions, you reduce the risk of a significant downturn in any single area affecting your entire portfolio.
- Reach out to your advisor: Engaging with your advisor here at Summit during these times can be highly beneficial. We can provide an objective perspective, helping you sift through the noise and keeping you aligned with your longterm financial goals.
- Limit media consumption: While it is essential to be informed, excessive media consumption can exacerbate anxieties. It might be beneficial to set a limit on how much news you consume during an election period. Elections are a testament to the vibrant democracy we live in, but they need not cause financial distress. By understanding historical market behaviors, acknowledging
the multifaceted influences on stock markets, and adhering to time-tested investment principles, we can navigate these politically charged times with grace and confidence.
While the future is always uncertain, equipping ourselves with knowledge and strategic foresight ensures that we remain poised for success irrespective of who occupies the Oval Office.
– ANDREW DICKENS, AIF®, CEXP™, CBVS™
Director of Pension Services & Wealth Advisor
