Why You Shouldn’t Let an Election Impact the Way You’re Investing
As the political landscape heats up with every election cycle, it’s natural for investors to feel a bit anxious. The media often amplifies the stakes, making it seem like the outcome of an election could make or break your financial future. However, seasoned investors and financial advisors know that letting an election dictate your investment strategy is not only unnecessary but potentially detrimental. Here’s why:
1. Long-Term Perspective is Key
Investing is a marathon, not a sprint. The stock market is designed to build wealth over the long term, typically spanning decades. Presidents serve for four years, possibly eight, but your investment horizon should be much longer. Historical data shows that the market tends to rise over time, regardless of which party is in power1. By focusing on long-term goals, you can ride out the short-term volatility that elections might bring.
2. Market Resilience
The stock market has a remarkable ability to adapt and grow, irrespective of political shifts. From Eisenhower to Biden, the market has consistently trended upwards over the long term2. While there may be short-term fluctuations around election times, these are often temporary and can present buying opportunities rather than reasons to sell.
3. Diversification Mitigates Risk
A well-diversified portfolio is your best defense against market volatility, including that which might be triggered by elections. By spreading your investments across various asset classes, sectors, and geographies, you reduce the impact of any single event on your overall portfolio2. This strategy helps ensure that your investments are not overly exposed to political risks.
4. Economic Fundamentals Over Politics
Market performance is more closely tied to economic fundamentals than to political outcomes. Factors such as corporate earnings, interest rates, and global economic conditions play a far more significant role in determining market direction than who sits in the Oval Office2. By focusing on these fundamentals, you can make more informed investment decisions.
5. Avoid Emotional Decision-Making
Elections can stir strong emotions, but emotional investing is rarely successful. Decisions driven by fear or excitement often lead to poor outcomes. Sticking to a well-thought-out investment plan, based on sound financial principles rather than political news, is crucial for long-term success3.
6. Historical Evidence
Historical evidence supports the notion that elections should not dictate investment strategies. For instance, the S&P 500 has shown positive returns in the majority of presidential terms since the 1950s, regardless of the party in power4. This resilience underscores the importance of maintaining a steady course.
Conclusion
While it’s natural to feel anxious about the potential impact of elections on your investments, it’s important to remember that the market is resilient and designed for long-term growth. By maintaining a diversified portfolio, focusing on economic fundamentals, and avoiding emotional decision-making, you can navigate the political noise and stay on track to achieve your financial goals.
Remember, the best investment strategy is one that is well-planned and adhered to, regardless of the political climate. Stay focused, stay diversified, and keep your eyes on the long-term horizon.
What are your thoughts on this approach? Do you have any specific concerns or questions about your investment strategy during election times? If you have any questions or need personalized advice on your investment strategy, don’t hesitate to reach out – jennifer.jenkins@bluestonewp.com.
References
1https://www.gobankingrates.com/investing/stocks/reasons-you-shouldnt-worry-about-the-election-impacting-the-stock-market/
2https://www.cnbc.com/2024/07/10/dont-make-investing-moves-based-on-the-election-experts-say.html
3https://www.capitalgroup.com/content/dam/cgc/tenants/eacg/documents/topics/elections/guide-to-elections.pdf
4https://www.jpmorgan.com/insights/outlook/market-outlook/how-the-upcoming-us-presidential-election-could-impact-your-portfolio
