Don't Let the Election Derail Your Investment Strategy
Ignore the headlines. With a solid financial plan and a well-diversified portfolio, you can confidently ride out any market volatility caused by the election.
As the U.S. presidential election approaches, it’s natural for investors to feel a surge of anxiety about its potential impact on their portfolios. With heightened media attention and the constant drumbeat of predictions, it’s easy to believe that the outcome of the election will dictate market movements. However, history tells a different story.
In reality, while elections bring volatility, they rarely determine long-term market performance. So how should you, as an investor, navigate the political landscape and protect your portfolio from the noise? Here’s what you need to know.
Uncertainty: The market’s greatest challenge
Elections are synonymous with uncertainty, and markets notoriously dislike uncertainty. This year’s race is shaping up to be one of the closest in decades, which could contribute to market volatility in the short term. However, investors should avoid knee-jerk reactions based on political headlines.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Historically, markets have shown remarkable resilience during election years. In fact, data shows that since 1970, the S&P 500 has delivered an average return of 11.6% during election years — outperforming the average annual return of 9% to 11%. This illustrates a critical point: The best course of action in the face of uncertainty is often to stay invested. Trying to time the market during volatile periods rarely pays off. Missing just a few of the best-performing days can significantly reduce long-term gains.
Does the party in power matter?
A common misconception is that the stock market performs better under one political party than the other. However, when we analyze decades of market data, we find no clear correlation between party control and stock market performance. Whether a Democrat or a Republican is in office, the stock market has historically generated positive returns over time.
A cold, calculating market
It’s important to remember that the stock market is not driven by ideology or political promises. At its core, the market is a mechanism for valuing companies based on their future earnings potential. It’s a cold, calculating entity that cares about corporate profits — not policy debates.
When a new president is elected, markets quickly adjust to any anticipated policy changes, factoring in their potential impact on company earnings. Whether the issue is taxes, tariffs or regulations, the market’s primary concern is how those policies affect corporate profitability.
In some cases, policies that seem harmful to certain sectors may already be priced into stock valuations before they are even implemented. Meanwhile, companies have proven time and time again that they can adapt to changing regulations, innovate and find ways to thrive regardless of the political environment.
Focus on the fundamentals
While elections may dominate headlines, they are just one of many factors influencing the market. Global economic trends, interest rate changes, corporate earnings and consumer behavior all play a far more significant role in determining long-term market performance.
Conclusion: Don’t let the election derail your strategy
The U.S. election may add an extra layer of uncertainty to the market, but it’s important not to let it derail your long-term investment strategy. History has shown that markets reward patient investors who stay the course, regardless of political outcomes.
Rather than reacting to political headlines, focus on the fundamentals: a diversified portfolio, a clear financial plan and the discipline to remain invested through volatile periods. By doing so, you’ll be better positioned to achieve your financial goals — no matter who sits in the White House.
Related Content
- Election 2024: Politics and Your Portfolio
- What Investors Should Keep in Mind This Election Season
- Could the Election Impact Interest Rates?
- Should You Still Have Bonds in Your Portfolio?
- In ESG Investing, Money Changes Everything
-
Senior Living Communities: A Guide to Finding the Right FitSenior living facilities have improved and are as diverse as the people who inhabit them. Now, they're more than just a place to go — they're a place to grow.
-
3 Common Myths About Working With a Financial PlannerThink financial planners are only for the wealthy and that AI can replace human advice? Nope. Even people with moderate wealth need professional advice.
-
Should You Invest in the Quantum Computing Sector?Investors interested in quantum computing could consider ETFs focused on cloud services enabling small businesses to use big technology.
-
Today's Senior Living Communities Are Not Your Grandma's 'Old Folks' Home': An Expert Guide to Shopping for the Right Fit
Senior living facilities have improved and are as diverse as the people who inhabit them. Now, they're more than just a place to go — they're a place to grow.
-
3 Common Misconceptions About Working With a Financial Planner
Think financial planners are only for the wealthy and that AI can replace human advice? Nope. Even people with moderate wealth need professional advice.
-
Should You Consider Investing in the Quantum Computing Sector? This Investment Adviser Has Some Suggestions
Investors interested in quantum computing could consider ETFs focused on cloud services enabling small businesses to use big technology.
-
S&P 500 Hits New High Before Big Tech Earnings, Fed: Stock Market TodayThe tech-heavy Nasdaq also shone in Tuesday's session, while UnitedHealth dragged on the blue-chip Dow Jones Industrial Average.
-
The 1-Month Rule for Setting Your Car Insurance DeductibleThe ideal car insurance deductible balances risk and savings. Here's how to find it.
-
Yes, Artificial Intelligence Stocks Are BoomingIt's fair to ask about the latest tech boom, "Is it really different this time?"
-
I'm an Estate Planning Attorney: These Are the Estate Plan Details You Need to Discuss (And What to Keep Private)Gen Xers and Millennials would like to know if they're going to inherit (and how much), but Baby Boomers in general don't like to talk about money. What to do?
-
I'm a Financial Adviser: This Is How You Can Minimize the Damage of Bad Market Timing at RetirementPoor investment returns early in retirement on top of withdrawals can quickly drain your savings. The ideal plan helps prevent having to sell assets at a loss.
