As election day draws nearer, opinions about how the outcome might impact the markets’ performance will circulate, and some of you may wonder if the potential outcomes of the election should influence changes to your long-term investment strategy.
The short answer is No. It should not influence significant changes to your long-term strategy. We’d caution against changing your strategy to profit from or avoid losses caused by political winds. We recommend staying the course and keeping your long-term investment strategy the same for several reasons.
1. Financial markets have been largely unbothered by election years. Stock market data going back to 1926 shows that returns in months when presidential elections took place were like any other month’s. In other words, most election months haven’t produced extreme returns in one direction or the other.
2. Betting on specific policy or sector impacts can be highly risky. No one can predict with any certainty which party will win certain institutions, let alone which sectors, industries, or stocks will benefit from the next administration’s policies.
3. Markets are nonpartisan. While it’s natural to look for a correlation between who wins the White House and which way stocks will go, it is also important to remember that shareholders are investing in companies, not a political party. And companies focus on serving their customers and helping their businesses grow, regardless of who is in the White House.
4. The market has rewarded disciplined investors over the long term through Democratic and Republican presidencies, making a strong case for sticking with a thoughtful plan to achieve long-term investment goals rather than taking the risk of trying to predict near-term political or market cycles.
For a chart of US Presidential Elections and monthly returns dating back to 1926, click here.
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Disclaimer: For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third-party data and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy or confirmed adequacy of this information. R-23-5263
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