What to Expect in the Markets During an Election Year
This is not a political post. If you’re looking for an opinionated post about who should be elected this year, you’ve come to the wrong place. We keep our political beliefs personal and private, and only very limitedly discuss political matters as they pertain to the overall economy, or how they might impact our financial planning.
It’s no secret that the US President plays a role in determining the future of our country and our economy. While we can’t predict the future, we can offer some information to hopefully help reduce your stress and anxiety about how your finances will fair during an election year.
First, don't overthink the economic impact of elections. While presidential politics and national leadership do impact the economy and news cycle they are absolutely not the only engine; most economic forces and trends are much longer term than an election cycle.
With the uncertainty that this process can often cause, it’s understandable that investors may get stressed, especially during an election year. Who knows who will win and what they will do?
The good news is that despite the uniqueness of circumstances in each election year, they typically follow a general pattern. You’re welcome to schedule a meeting with us if you want to learn more about this, but for now, here’s 5 tips to help calm your financial anxiety this year.
1) Ignore the Media “Noise”
The internet is great at providing a wealth of information at your fingertips. Unfortunately, anyone can post just about anything online. Many of these people get paid based on the amount of “clicks” their content receives, not the quality of the content they publish. As a result, many of the “news” articles out there are nothing more than a catchy title designed to pique your curiosity or generate an emotional response.
It's no secret that “doom and gloom” sells, as fear is the emotion most likely to generate a response in the vast majority of individuals. Our election system, and the system of checks-and-balances may not be perfect, but they do generally work.
Markets and the economy don’t typically crash just because of who’s in the office. Ignore all the negative nonsense and find a few trustworthy sources for news and economic updates. If you’re still feeling anxious, give us a call.
2) Remember to Think Long-Term
If you skipped over the first tip, it’s easy to get caught up in all the excitement and anxiety of election years. Presidential campaigns are well-funded and well-designed to paint a euphoric picture of everything the president will accomplish, while simultaneously showcasing everything their opponents will “destroy”.
Remember, your investments are likely set to a different timeframe than the election cycle. It takes time and compromise to implement new laws and policies, and companies have proven that they’re surprisingly capable of adapting to changes and innovating to remain profitable. You’re not investing in politics, you’re investing (or should be) in good, solid companies with a proven or promising track record. Put more weight on thoughts of the future, and the present will be much more manageable.
3) Look at the Market Trends
Historically, the markets have seen positive returns during election years. That shouldn’t be surprising since the market has positive returns more often than not. Now it’s true that there may be some heightened volatility during the months leading up to the election due to the uncertainty of the outcome, but if you remember Tip 2 and think longer term, you should be able to weather that volatility with ease. Generally speaking, once a strong front-runner (or the President Elect) has been identified, markets tend to level off back to their equilibrium state. Forbes put out a decent article about this back in 2020 if you’d like to view it - Here's How the Stock Market has Performed Before, During, and After Presidential Elections.
4) Stick to Your Strategy
Whether you make periodic contributions throughout the year, or larger lump-sum contributions once per year (maybe your tax refund, or excess savings for your tax bill), it’s important to maintain consistency. It may seem like a good idea to try to take advantage of the increased volatility by timing the market, but there’s a good chance you won’t time it correctly and will miss out on some gains.
Assuming your individual circumstances and objectives haven’t changed, the best course of action is typically to maintain a consistent investment strategy and let time and the markets do their thing. In the event that you don’t have a strategy in place yet, it may be a good idea to get one started. Setting up monthly or weekly automatic contributions is typically the easiest way for folks to stay on track, as this takes the guesswork and emotion out of the equation. You’re also welcome to give us a call if you want some help developing a plan.
5) Meet With Your Financial Planner
Typically, financial planners try to advise their clients on what to expect for the year (at least that’s what we do). The more informed you are, the less likely you are to stress as the market progresses through it’s cycles. However, if you’re not meeting with your financial planner on a regular basis, it might be difficult for them to keep you well informed.
If all the ups and downs of the market are still giving you motion sickness, just reach out to your financial planner. I’m sure they’ll be more than happy to discuss the situation with you and provide some helpful advice. If not, give us a call. We’ll be happy to speak with you.
Additional Thoughts: Addressing Your Specific Concerns
While our goal is to provide full and comprehensive planning to all the clients we serve, we recognize that it’s typically just one or two concerns that prompts most individuals to seek a financial planner. During our free Introductory Conversations, and our Discovery Process, we work hard to make sure that we fully understand your most pressing concerns. We’ll let you know if your concerns fall within our realm of expertise and will prioritize your concerns until we come to a mutually agreed upon solution. Many new clients have come to us for help with a single concern, such as “what to do with a large inheritance” or “setting up a retirement plan for their business”. After we help with their initial concern, they stay with us to receive continual financial advice and education, often receiving guidance in areas they’ve seldom ever thought about.
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