As the presidential election season ramps up, we will all be overwhelmed with political ads telling us why one candidate is better or worse for our economy and our country.
Clients have recently been asking how the election will affect the markets and, more specifically, their portfolio.
If you examine the historical data on how past elections have influenced the stock market, you'll find that the stock market has mostly remained stable. The stock market is primarily concerned with the economy's performance and companies' profitability, not the identity of the next president. The president has little influence on the direction of the markets.
For example, between 1944 and 2020, there were 20 presidential elections, and the S&P 500 posted a positive return in 16 of them. In the 10 months leading up to those elections, the S&P 500 gained a median of 5.6%. While there is no guarantee that the same thing will happen this year, it is encouraging to see that the stock market typically is not affected by what goes on with elections and should provide reassurance to you about the resilience of your portfolio during the election season.
Following are some suggestions that may help lessen your stress and anxiety during the election season:
Don’t sweat the headlines.
A lot of ink will be spilled on candidates as to why they are good or bad for the country. In all cases, don’t let them sway your attitude on life or your portfolio investment plan.
Don’t worry about things you cannot control.
This is great advice that spills across all aspects of life but is especially true during an election year. Candidates will say or do things you may not like or ideologically approve of. It is usually best to focus on things you can control.
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Do the same thing with your portfolio as before the election.
Any changes you contemplate making to your portfolio should be based on personal circumstances, not the political rancor that inevitably happens in an election year.
Remember that your portfolio will likely be OK if your candidate does not win.
Who wins the presidential election has historically had less of an effect on the market (and thus portfolios) than the economic backdrop at the time.
Focus on your goals.
Don’t let the political fearmongering derail you from your financial plan. Discuss your concerns about your portfolio with a financial planner.
The rest of this election year will likely be filled with more drama, but maintaining a steady course is the key to remaining confident. Don't let short-term political rhetoric sway your investment decisions. Amid the noise of the election season, staying focused on your long-term financial goals is crucial. So, keep your eyes on the future, exercise your right to vote and help ensure your portfolio is pursuing your goals by working with a financial adviser.
