Stressed about your finances during the election year? These facts may calm you down

Investing during a presidential election year can be nerve-racking to say the least. Elections can introduce uncertainty into the financial markets, impacting investor sentiment and market volatility. There are several myths and misconceptions about investing during election years. Let’s debunk some common myths and explore challenges and strategies.

Myth 1: Election years are bad for the stock market.

Reality: While election years can be volatile, they don’t always result in negative outcomes, and the long-term effect of presidential elections on portfolios and 401(k)s is minimal. A recent study considered how a moderate-risk portfolio (holding 60% stocks and 40% bonds) performed during election years since 1928. Only four years demonstrated negative returns: 1932 (-1.4%), 1940 (-4.7%), 2000 (-0.8%) and 2008 (-20.1%).

What is notable, though, is these four presidential election years also coincided with significant market events: The Great Depression, World War II, the Tech Bubble and the Global Financial Crisis.

Myth 2: The stock market performs better under a certain political party.

Reality: There is no conclusive evidence that shows the president’s party has any meaningful impact on stock market returns. Market returns are influenced by corporate earnings, monetary policy, business cycles, inflation and interest rates. The underlying economic conditions have a far greater effect on the market’s returns than a president’s party.

Myth 3: You should completely overhaul your portfolio based on election results.

Reality: While election outcomes can impact certain sectors and industries, making drastic changes to your portfolio solely based on election results is often unnecessary and can be risky.

It can be tempting to change your investment strategy based on election results. This was recently demonstrated by a Morningstar survey that showed the presidential election concerned investors more than economic worries. Diversification and a long-term investment strategy are generally more effective in navigating market fluctuations.

Fact: Investors face election year challenges.

Investing during an election year presents several challenges that investors should be aware of:

Market volatility: Volatility is the product of uncertainty and there’s nothing that creates more uncertainty than which political party is going to control the White House.

Policy uncertainty: Presidential candidates have varying stances on policies that can impact specific sectors or industries differently.

Short-term focus: Investors can become overly focused on short-term market movements driven by election-related news, leading to decisions that may not align with their long-term investment strategies.

Misinformation and market sentiment: During election cycles, there can be a flood of information, speculation and potentially misleading narratives that impact market sentiment and investor behavior.

Fact: It’s wise to find strategies for investing during election years.

Diversification: Manage risk from potential volatility by spreading your investments out across different asset classes and industries. Stick to a long-term investment strategy rather than trying to time the market based on election outcomes.

Filter out the noise: Avoid making impulsive decisions based solely on election-related news. For the news media, it’s a race to produce content and captivate audiences. Maintain a balanced portfolio aligned with your risk tolerance and investment goals.

Dollar-cost averaging: Investing regularly (i.e., monthly) regardless of market conditions can help smooth out volatility and potentially lower the average cost of investments over time.

Seek professional advice: If you’re uncertain or nervous about how election outcomes might affect your investments, consult with a financial advisor who can provide guidance and reassurance.

If you’re worried about the markets in 2024, you certainly aren’t alone. Politics and election cycles bring attention to the country’s problems and many times amplify negative messages. Famous value-investor Benjamin Graham once said, “In the short run, the market is a voting machine.” Votes are based on the sentiment of people at a given time and this sentiment goes up and down (and sometimes rapidly).

This couldn’t be truer for the markets during election season. Filter out the noise and stick to a disciplined investment strategy focused on long-term goals. It is normal to feel stressed or overwhelmed about your finances during major market events like elections. Just remember: at the end of the day, we’re all in this together.

Justin Kittle is a Chartered Financial Analyst and Certified Financial Planner. He is a member of the Financial Planning Association of Greater Kansas City and the CFA Society of Kansas City. He serves as Portfolio Manager and Advisor for IMA Advisory Services, a federally registered investment adviser under the Investment Advisers Act of 1940.