Election years often bring a surge of uncertainty, and this fall will be no different. In our polarized political climate, it’s easy to get swept up in fear. Investors, and rightfully so, worry about how the presidential election might impact their portfolios. It’s common to think:
The good news?
Historical data shows that presidential elections usually have minimal long-term impact on investors' returns. In fact, election years can present opportunities for savvy investors who stay focused on their long-term goals. As we gear up for the 2024 election, let's consider some investment data trends from past election cycles:
Consideration #1: Worrying excessively about market volatility.
Markets do see some volatility during election years, but it’s often less significant than many expect. Let’s take a look at historical data from 1984 to 2020: according to a Vanguard analysis, the S&P 500 Index's annualized volatility averaged 16.5% in the 100 days before an election and 15.9% in the 100 days after. Both are lower than the 17.9% average volatility over the entire period, suggesting the market operates independently of election cycles.
Consideration #2: Missing out on investment opportunities.
Many investors shift to more conservative portfolios during an election year, missing significant opportunities.
Historically, market performance often starts slow in the first half of a presidential year and accelerates in the second half. Investors who moved heavily into money market funds before the election often miss substantial growth opportunities later in the year.
Consideration #3: Believing that capital markets care about politics.
While it’s natural to worry about the country's future under different political leadership, capital markets are primarily concerned with future earnings. Historical data shows that market returns are influenced more by policy decisions than by which party controls the White House or Congress.
Instead of fretting over political control, keep an eye on policy issues like tax rates, international conflicts, immigration, spending priorities, trade agreements, healthcare, and regulations.
Consideration #4: Sacrificing long-term returns due to short-term volatility fears.
One of the biggest investing mistakes is letting fear or uncertainty dictate your decisions. Every bear market in history has been followed by a bull market thus far. Markets tend to rise over time, regardless of political shifts.
Missing just a few days in the market can significantly impact long-term performance. Fear-driven changes to your portfolio can lead to selling at a loss and missing out on eventual recovery. A long-term investment approach helps you stay the course through political uncertainty.
The Bottom Line
Elections are crucial, and the President's policies can impact our lives significantly. However, capital markets are relatively indifferent to the political landscape. Investors making fear-based decisions during election years risk missing long-term opportunities. Instead of letting uncertainty influence your investments, focus on a diversified portfolio aligned with your goals, risk tolerance, timeline, and financial situation. Don’t let political concerns derail your long-term investment strategy.
If you need help developing a robust long-term portfolio to weather future market volatility, consider scheduling a call with our team.
Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by GatePass Capital or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.
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