How do you feel about investing in an election year? As frequently happens, election season is stirring up a lot of emotions. Some of the things keeping Americans up at night are questions like, “How will this election affect the stock market? My child’s college savings fund? My retirement fund?”
These are valid concerns, especially with the economic climate we’ve been experiencing in the last few years. Investing in an election year can feel risky even without other economic events. But we want to settle your nerves. Historically, elections don’t have a long-term effect on the markets.
Here are two main reasons why we believe this to be true:
1. Politics don’t drive the markets—policies do
Right now, the hot topics leading up to Election Day all surround politics. But statistics show that politics don’t have much of an impact on long-term investment returns:
Once the candidate is elected into office, policies may have some impact on the economy, but politics generally do not. Policies are determined by the House, Senate, and Presidency.
Here are some of the policy issues to monitor throughout the presidential nomination and election process:
- Individual and corporate tax policies
- Spending priorities, such as energy, infrastructure, and defense
- Regulation
- Healthcare
- Immigration policy
- Geopolitical conflicts
- China (trade and Taiwan)
2. Regardless of who gets elected, we expect to see long-term growth
When we ask people how they feel about the economy, their response is typically reflective of their political beliefs. If Republicans control the White House, Republicans tend to believe the economy is performing well—and vice versa with Democrats:
According to Pew Research Center data, 28% of Americans currently rate national economic conditions as excellent or good, a similar share (31%) say they are poor, and 41% view them as “only fair”. This outlook is divided along party lines:
- 44% of Democrats and Democratic leaners say the nation’s economy is excellent or good, compared with just 13% of Republicans and GOP leaners
- 34% of Democrats say they expect economic conditions a year from now will be better than they are today, compared with 20% of Republicans
But no matter who’s elected, Republican or Democrat, most of the time, you’ll see the market rise and the economy grow over time. The drivers of long-term market growth are businesses that seek to be profitable by providing goods and services people want and need.
Our advice for investing in an election year
Set politics aside when it comes to your investments. Don’t react emotionally, sell all of your stocks, or make drastic changes to your portfolio. Volatility in the markets is completely normal. We expect it, and we anticipate it. If you sit tight, you’ll see that long-term average growth rewards investors who do not let short-term volatility drive their decisions.
Get in touch with your financial advisor if you need any assurance or have any questions.
You may also be interested in: A Beginner’s Guide to Tax-Efficient Investing